KAMLA DAL MILLS Vs. STATE OF U P

JUDGEMENT

(1.) THIS is a petition under Article 226 of the Constitution for certiorari to quash Notification No. ST-7122/X- 900(16)/64 issued by the State Government of U.P. on 1st October, 1964, and injunction prohibiting the State of U.P. and the Sales Tax Officer, Hathras, from enforcing section 3-D of the U.P. Sales Tax Act and the above-mentioned notification against the petitioner and from levying, assessing and collecting purchase tax under section 3-D on purchases. The petitioner is a firm registered as a dealer under the U.P. Sales Tax Act and carrying on the business of purchasing pluses from kachcha arhatiyas acting as agents of cultivators and from other dealers and manufacturers of dal and selling pulses. The U.P. Sales Tax Act was enacted "to provide for the levy of a tax on the sale of goods in the United Provinces". Under section 3 of it every dealer was required to "pay a tax at the rate of three pies per rupee on his turnover of" each assessment year and it was to be determined in the prescribed manner and the State Government was empowered to enhance the rate on the turnover in respect of any goods. "Turnover" was defined in section 2(i) to mean "the aggregate of the proceeds of sales by a dealer". By section 4, sale of water, milk etc. and goods notified by the State Government was exempted from payment of tax. The Act was amended from time to time. Section 3-A was added empowering the State Government to declare by notification that the turnover in respect of any goods or class of goods will not be liable to tax except at such single point in the series of sales by successive dealers as it may specify and to fix the rate of tax. Sections 3-AA was added laying down that the turnover in respect of oil-seeds and certain other goods will not be liable to tax except at the point of sale by a dealer to the consumer and the rate of tax was not to exceed 3 pies per rupee. Sections 3 and 3-AA were subsequently amended and the rate of tax was increased from 3 pies per rupee to 2 naye paise per rupee of the turnover. By another amendment definition of "turnover of purchases" was introduced; it was "the aggregate of the amounts of purchase price paid or payable by a dealer in respect of purchase of goods made by or through him". On 1st October, 1964, the rate of tax payable under section 3 on the turnover of sale of foodgrains was 1 paisa per rupee and on the turnover of sales of gur, rab and oil-seeds 2 paise per rupee. The Act was amended by Act No. 22 of 1964 and purchased tax was introduced for the first time with effect from 1st October, 1964. The following amendments were made by it. In the preamble the words "to provide for the levy of a tax on the sales or purchase go goods" were substituted for the words "to provide for the levy of a tax on the sale of goods". The definition of "turnover" was altered to "the aggregate amount for which goods are supplied or distributed by way of sale or are sold, or the aggregate amount for which goods are bought, whichever is greater by a dealer, either directly or through another, on his account or on account of others whether for cash or deferred payment or other valuable consideration". Section 3-D was added; it was:-

(2.) THERE were other amendments which are irrelevant. On 1st October, 1964, the State Government issued the impugned Notification No. ST-7122/X in exercise of the powers conferred by section 3-D(1) declaring that with effect from 1st October, 1964, the turnover of first purchases in respect of goods mentioned below shall be liable to tax under section 3-D at the rate mentioned:-

(3.) IN connected Writ No. 3571 of 1965 the petitioner is a registered dealer carrying on the business of purchasing ghee (mostly from producers) and selling ghee. In connected Writ 3922 of 1965 the petitioner is a registered dealer purchasing oil-seeds from kachcha arhatiyas acting as agents of cultivators and from pakka arhatiyas. In connected Writ No. 3800 of 1965 the petitioner is a registered dealer carrying on the business of purchasing rab from other dealers. The petitioners in the other connected petitions are all registered dealers in foodgrains, ghee, rab or oil-seeds. Under Article 246(3) of the Constitution the U.P. State Legislature had "exclusive power to make laws.. with respect to any of the matters enumerated in List II in the Seventh Schedule" and List II includes item 54 "taxes on the sale or purchase of goods". Thus the U.P. Legislature had the exclusive power to make laws for U.P. with respect to taxes on purchase of goods. The U.P. Sales Tax Act was enacted in exercise of this power. By section 3 it imposed a tax on the turnover of each dealer; it was called a tax and not sales tax. According to the definition of turnover as it stood prior to its amendment in 1964 the turnover meant the aggregate of proceeds of sale by a dealer; the effect, therefore, was that tax was payable under section 3 on sales, i.e., by the seller and not on purchases, i.e., by the purchasers. Though it was designed as a mere tax, in effect it was a sales tax. Section 3 remains as it was after the amendment; what is payable under it is a tax at a certain rate on the turnover of each dealer. A tax on the turnover of purchases is made payable for the first time under section 3-D and now the tax is payable on the turnover either of the sales or purchases under section 3 or of purchases only under section 3-D; the former tax is payable by the seller or the purchaser, and the latter by the purchaser. The tax under section 3 is payable on all goods barring certain goods specified in section 4 and goods exempted by the State Government's notification; on certain goods it is payable only at a singly point of sale but on other goods it is payable at every point of sale. The rate of tax is fixed by section 3 but the State Government is empowered to fix rates within limits in respect of goods selected for single point taxation. The Legislature has, on the other hand, neither specified the goods in respect of which the purchase tax (i.e., the tax payable under section 3-D) is payable nor the rate at which it is payable. The selection of goods subject to the purchase tax is left at the discretion of the State Government. So long as it does not issue a notification, no purchase tax is payable at all. When it issues a notification it is payable only in respect of the goods notified in it. The Legislature has not fixed the rate of the purchase tax but only fixed the maximum limits of 2 paise per rupee in the case of foodgrains and 5 paise per rupee in the case of other goods. In the statement of objects and reasons for the enactment of section 3-D it is stated that there was some resentment against multiple point levy, particularly on essential commodities like foodgrains, that there has been evasion of tax on large scale by intermediaries between cultivators and purchasers on the ground that they are not "dealers" and that consequently it was decided to have a system of single point purchase tax at the first point of purchase and to provide for levy of single point sales tax on transactions of first purchase on which purchase tax may not be leviable. It is further stated that since some commodity subject to multiple point tax generally passes through at least two hands before reaching the consumer it has become necessary to increase the rate of tax consequent to the switch- over to single point tax and the Government is empowered to fix the rate of tax which it considers equitable in respect of each individual commodity. This statement gives sufficient guidance not only about the rate of the purchase tax to be selected by the State Government but also about the particular goods to be subjected to the purchase tax. It indicates that foodgrains and certain other essential commodities are fit to be subjected to the purchase tax. Then there are other goods which can be subjected to it because mercantile agents dealing in them dispute their liability to pay sales tax on the ground that they are mere intermediaries. As regards the rate the maximum provides a limit to the rate to be selected by the State Government. About the exact rate to be selected for each kind of goods sufficient guidance is given by the fact that the goods generally pass through at least two hands before reaching the consumer. The State Government is expected, and should be relied upon, to be guided by these considerations in selecting the goods for the levy of the purchase tax and the rate of the purchase tax to be applicable to them. The argument that unguided discretion has been left to the State Government is without force. The discretion that is conferred is not dissimilar to the discretion conferred by other provisions of the Act, such as sections 3-A and 4, which have not been held to be invalid. In Vasanlal Maganbhai v. State of Bombay (A.I.R. 1961 S.C. 4.), the Supreme Court held that section 6(2) of the Bombay Tenancy and Agricultural Lands Act (No. 67 of 1948), empowering the State Government to fix a lower maximum rate in any area as valid. The law on the subject of delegation of powers by a Legislature to the State Government was stated by Gajendragadkar, J., in these words: