GOVERNOR GENERAL IN COUNCIL Vs. PROVINCE OF MADRAS

JUDGEMENT

(1.) This appeal is brought by the Governor-General in Council from a decree made by the Federal Court of India in its original jurisdiction on 17 March 1942. In proceedings commenced in that Court against the respondent, the Province of Madras, the appellant claimed that the Madras Act, 9 of 1939, known as the Madras General Sales Tax Act of 1989 and hereafter referred to as "the Madras Act," in so far as it purports to levy a tax on first sales in Madras of goods manufactured or produced in India is, except in respect of certain excepted goods, ultra vires and beyond the competence of the Legislature of the respondent. The Federal Court dismissed the appellant's suit following its previous decision in an appeal from the High Court of Madras in a suit in which the present respondents were appellants and a firm called Boddu Paidanna and Sons were respondents and the validity of the same provisions of the same Act was in issue. This case will be referred to as the Boddu Paidanna case.1

(2.) The legislative powers of the Federal and Provincial Legislatures respectively are defined in the Government of India Act, 1985, sometimes called "The Constitution Act," and it will be convenient to refer to them before examining the provisions of the impugned Madras Act. Section 100, Constitution Act, provides as follows: "(1) Notwithstanding anything in the two next succeeding sub-sections the Federal Legislature has, and a Provincial Legislature has not, power to make laws with respect to any of the matters enumerated in List I in Sch. 7 to this Act (hereinafter called the 'Federal Legislation List'). (2) Notwithstanding anything in the next succeeding sub-sections the Federal Legislature, and, subject to the preceding subsection, a Provincial Legislature also, have power to make laws with respect to any of the matters enumerated in List III in the said Schedule (hereinafter called the 'Concurrent Legislative List'). "(3) Subject to the two preceding sub-sections, the Provincial Legislature has, and the Federal Legislature has not, power to make laws for a Province or any part thereof with respect to any of the matters enumerated in List II in the said Schedule (hereinafter called the "Provincial Legislative List.") (4) The Federal Legislature has power to make laws with respect to matters enumerated in the Provincial Legislative List except for a Province or any part thereof." Entry No. 45 of the Federal Legislative List is as follows : "45. Duties of excise on Tobacco and other goods manufactured or produced in India except [there follow certain exceptions]." Entry No. 43 of the Provincial Legislative List is as follows: "48. Taxes on the sale of goods and on advertisements."

(3.) It is upon these two entries respectively that the parties rely, the respondent contending that Entry No. 48 of the Provincial Legislative List authorises and justifies the impugned provisions of the Madras Act, the appellant contending that so far as those provisions purport to impose a tax on first sales they in effect impose a duty of excise and are therefore an encroachment upon the power given exclusively to the Federal Legislature by Entry No. 45 of the Federal Legislative-List. Before further considering the provisions of the Constitution Act it will be convenient to examine somewhat closely the Madras Act. For in a Federal constitution, in which there is a division of legislative powers between Central and Provincial Legislatures, it appears to be inevitable that controversy should arise whether one or other Legislature is not exceeding its own, and encroaching on the other's, constitutional legislative power, and in such a controversy it is a principle, which ' their Lordships do not hesitate to apply in the present case, that it is not the name of the tax but its real nature, its "pith and substance" as it has sometimes been said, which must determine into what category it falls. The Madras Act which received the assent of the Governor of Madras on 4 June 1989, is entitled "An Act to provide for the levy of a general tax on the sale of goods in the Province of Madras." Its preamble recites that it is expedient to provide for the levy of a general tax on the sale of goods in the Province of Madras. By S. 1 it is provided that this Act may be called "The Madras General Sales Tax Act, 1939," and that it is to extend to the whole of the Province of Madras. The rest of the Act does not bely its title or its declared purpose. Section 2 contains a number of definitions of which it is necessary to refer only to the following : "(b) 'dealer' means any person who carries on the business of buying or selling goods. (h) 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration but does not include a mortgage hypothecation charge or pledge. (i) 'Turnover' means the aggregate amount for which goods are either bought or sold by a dealer whether for cash or for deferred payment or other valuable consideration provided that the proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on any and in which he has an interest whether as owner, usufructuary mortgages; tenant or otherwise, shall be excluded from his turnover. "Explanation-Subject to such conditions and restrictions, if any, as may be prescribed in this behalf: '(i) the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof ; '(ii) any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers shall not be included in the turnover. '(iii) where for accommodating a particular customer a dealer obtains goods from another dealer and immediately disposes of the same to the said customer, the sale in respect of such goods shall be included in the turnover of the latter dealer but not in that of the former '." Section 3, the taxing section, provides as follows: "3 (1) Subject to the provisions of this Act, every deales shall pay in each year a tax in accordance with the scale specified below : (a) If his turnover does not exceed 20,000 rupees. 5 rupees per month. (b) if his turnover exceeds 20,000 rupees, one half of one per cent. of such turnover. Provided that any dealer whose turnover in any year is less than 10,000 rupees shall not be liable to pay the tax under this sub-section for that year : Provided further (1) that in respect of the same transaction of sale, the buyer and the sellers shall not both be taxed but only one of them, as shall be determined by the rules made in this behalf under sub-s. (2) shall be taxed thereon and (2) that when the amount for which any goods were bought by a dealer has been included in his turnover the amount for which the same goods were sold by him shall not be included in his turnover for the purposes of this Act.' (2) The turnover for all the purposes of this Act shall be determined in accordance with, and the tax shall be assessed, levied and collected in such manner and in such instalment as may be prescribed by the Rules made by the Provincial Government in this behalf. (3) Subject to any rules made under sub-s. (2) the assessing authority may fix the turnover of any dealer in any year at the amount of his turnover in the previous year."