1. The petitioner is a Limited Company carrying on the business of manufacture and sale of electrical goods. By a notice dated 1-7-1968, the Commercial Tax Officer, V Circle, Bangalore (Respondent No. 1) proposed to provisionally assess the petitioner on a net turnover of Rs. 21,45,037-68 and levy a tax of Rs. 6,82,566-75 for the period 1-4-1968 to 31-3-1969 finder Section 9(3) of the Central Sales Tax Act, 1956, hereinafter called the 'Act' read with Section 12-B of the Mysore Sales Tax Act, 1957. On 15-7-1968, the petitioner filed the above writ petition challenging the levy on the ground that the provisions of Sections 8 and 9 of the Act are unconstitutional. The main ground of attack was that the Act has adopted the Sales Tax Laws of various States not only as they stood at the time when the Act was passed but also the Sales Tax Laws as in force from time to time after the passing of the Act in the matter of fixation of rate 'of taxation, grant of exemptions, assessment and collection of tax and imposition of penalty and thereby the Parliament has abdicated its essential legislative function.
In the alternative, it was urged that the Act must be deemed to have adopted the Sales Tax Laws as in force when the Act came into force on 21-12-1956 and that the Sales Tax law in force at that time was the Mysore Sales Tax Act, 1948, which did not provide for making provisional assessment and hence Respondent No. 1 had no Jurisdiction to issue the impugned notice proposing to make provisional assessment to tax. Luring the pendency of the writ petition, Section 9, among others, of the Act was amended by the Central Sales Tax (Amendment) Act, 1969, and it is the validity of Section 9 as amended that has to be considered.
2. The argument of the learned counsel for the petitioner was that the Act has adopted not only the Sales Tax Laws of the States as they stood when the Act was pass-ed but also the future Sales Tax laws as amended from time to time in the matter of fixation of rate of taxation, grant of exemptions, assessment and collection; that an Act of the Parliament adopting the future laws passed by another legislature is a clear abdication of essential legislative function and therefore Sections 8 and 9 are void. In support of that contention, the learned counsel relied on the decision in B. Shama Rao v. Union Territory of Pondicherry, : 2SCR650 . The Legislative Assembly competent to legislate for the Union Territory of Pondicherry passed the Pondicherry General Sales Tax Act, 1965, which was published on 3rd June, 1965 after receiving me President's assent on 25th May, 1965. Section 1 (2) of that Act provided that it would come into force oft such date as the Government by Notification appoint. Section 2 (1) provided that the' Madras General Sales Tax Act,' 1959, as in force in the State of Madras immediately before the commencement of the Pondicherry Act shall extend to and come into force in the Union Territory of Pondicherry subject to certain modifications and adaptations. As provided by Section 1 (2), the Pondicherry Government issued a notification dated 1st March, 1966 bringing into force the Madras Act as extended by the Pondicherry Act to the Union Territory of Pondicherry as from 1st April, 1966. In the meantime, the Madras Legislature had amended the Madras Act and consequently it was the Madras Act as amended upto 1st April, 1966 that was brought into force under the said Notification.
The petitioner before the Supreme Court contended that while it was competent for the Pondicherry Legislature to extend the Madras Act as it stood when the Pondicherry Act was passed, the Pondicherry Legislature could not have adopted the Madras law as amended by the Madras Legislature. In other words, the Pondicherry Legislature could not have adopted the future laws enacted by the Madras Legislature. The Supreme Court upheld that contention and declared that the Pondicherry Act was unconstitutional. In the course of that judgment, the Supreme Court observed as follows:
'The question then is whether in extending the Madras Act in the manner and to the extent it did under Section 2(1) of the Principal Act the Pondicherry Legislature abdicated its Legislative power in favour of the Madras Legislature. It is manifest that the Assembly refused to perform its legislative functions entrusted under the Act con-stetting it. It may be that a mere refusal may not amount to abdication if the Legislature instead of going through the full formality of legislation applies its mind to an existing statute enacted by another Legislature for another jurisdiction, adopts such an Act and enacts to extend it to the territory under its jurisdiction. In' doing so, it may perhaps be said that it has laid down a policy to extend such an Act and directs the executive to apply and implement such an Act. But when it not only adopts such an Act but also provides that the Act applicable to its territory shall be the Act amended in future by the other Legislature, there is nothing for it to predicate what the amended Act would be. Such a case would be clearly one of non-application of mind and one of refusal to discharge the function entrusted to it by the instrument constituting it. It is difficult to see how such a case is not one of abdication or effacement in favour of another Legislature at least in regard to that particular matter.'
3. Belying on the above statement of the law, it was argued by the learned counsel for the petitioner that the Central Sales Tax Act having adopted not only the Sales Tax Laws of the appropriate States as they existed when the Act came into force but also the future laws to be enacted from time to time, it is a clear case of non-application of the mind and one of refusal to discharge the functions entrusted to the Parliament by the Constitution:
4. The learned counsel for the petitioner next relied on the decision in Shah and Co. v. State of Madras, (1967) 20 ` 146 (Mad). Therein the question was whether the' penalty levied under Section 9(3) of the Act read with Section 12 (3) of the Madras General Sales Tax Act, 1959 was valid. When the Act was passed, the Sales Tax Law in force in the Madras State was the Madras General Sales Tax Act, 1939 which did not contain any provision for levying penalty. It was held by the Madras High Court that while it is competent for the Parliament to adopt the existing provisions of a local law as part of the Central Legislation without repeating those provisions in the Central Act, it cannot make a law adopting the provisions of a local law which does not exist at that time.
5. The question is whether the Parliament in enacting Sections 8 and 9 of the Act has abdicated its essential legislative function and adopted the future laws of the States.
6. In Pandit Banarasidas v. State of Madhya Pradesh, : 1SCR427 Section 6 (2) 'of the C. P. and Berar Sales Tax Act, 1947 which empowered the State Government to amend the schedule of the Act providing for exemption from sales tax was impugned on the ground of impermissible delegation of legislative power.
Accepting the law as laid down by the Supreme Court in Rajnarain Singh v. Patna Administration Committee, : 1SCR290 Venkatarama Aiyar, J. said:
'Now, the authorities are clear that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws such as the selection or persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like.'
7. In Corporation of Calcutta v. Liberty Cinema, : 2SCR477 Sarkar, J. (as he then was) delivering the majority judgment for himself, Raghubar Dayal and Mudholkar, JJ. held that Pandit Banarasidas's case, : 1SCR427 was an express authority for the proposition that the fixing of rates of tax may legitimately be left by a statute to a non-legislative authority and there was no distinction in principle between delegating a power to fix rates of taxes to be charged on different classes of goods and a power to fix rates simpliciter.
8. In Devidas Gopal Krishnan v. State of Punjab, : 3SCR557 it was held that since under Section 5 of the Punjab General Sales Tax Act, 1948, as it originally stood, an uncontrolled power was conferred on the Provincial Government to levy tax at such rates as the Government might direct, the legislature practically effaced itself in the matter of fixation of rates and it did not give any guidance either under that section or under any oilier provisions of the Act and therefore Section 5 as it was originally enacted was void.
9. The decision in State of Madras v. Nataraja Mudaliar, (1967) 22 STC 376 = (AIR 1969 SC 147) has reviewed the developments in the law relating to imposition of tax on transactions of sale and its interrelation with the constitutional provisions leading to the enactment of the Act. The exercise of taxing power by the Provinces led to multiple taxation of the same transaction by many Provinces, 'the burden of tax falling ultimately on the consuming public. In order to remove the burden imposed upon the consumers, Article 286 was incorporated in the Constitution, inter alia, for the regulation of inter-State sale transactions. In State of Bombay v. United Motors (India) Ltd., : 4SCR1069 the Supreme Court held that under the Bombay Sales Tax Act, 1952 sales effected in Bombay in respect of goods exported from the State were not taxable by the State of Bombay, but the importing State was competent to levy tax on transactions of sale in the course of inter-State trade or commerce on persons who were resident outside its territory, provided that the goods were delivered in the importing State for the purposeof consumption therein. The said decision made the dealer carrying on business in the exporting State amenable to the Sales Tax Law of the importing State. The question was reconsidered by the Supreme Court in Bengal Immunity Co. Ltd. v. State of Bihar, : 2SCR603 . In the said case, the Supreme Court heldthat the sales or purchases made by an assessee which actually took place in the course of inter-State trade or commerce could not be taxed by any State until by law it was otherwise provided by Parliament.
The Judgment in Bengal Immunity's case, : 2SCR603 , removed by making inter-State sales immune from taxation, the difficulties till then experienced by the trading community but the importing States, which had imposed tax on inter-State sales by non-resident dealers relying on the principle of the judgment in United Motors case, : 2SCR603 ; were faced with, innumerable claims for restitution of the tax realised. The President then promulgated Ordinance No. 3 of 1956 which was later replaced by the 'Sales Tax Law Validation Act 7 of 1956' with the object of restoring for the period specified in the Act the decision in the United Motor's case, : 4SCR1069 . The problem of tax on inter-state sales was, in the meanwhile examined by the Taxation Enquiry Commission. The report of the Commission led to the enactment of the Constitution (Sixth Amendment) Act, 1956. By that amendment entry 92-A was added in the Union List in the Seventh Schedule to the Constitution conferring power upon the Union to legislate in respect of 'taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce' and for entry 54 in the State List, the subject 'Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I' was substituted.
Article 286 of the Constitution was also amended; by the amended Article 286 the Parliament was authorised to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce in any of the ways mentioned in Clause (I), and by Clause (3) it was enacted that any law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates, and other incidents of the tax as Parliament may by law specify.
In Article 269(1), Clause (g) was added authorising the Government of India to collect tax on the sale or purchase of goodsother than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce and making it obligatory upon the Government of India to assign the tax to the States in the manner provided in Clause (2).
10. In exercise of the authority conferred by the Constitution (Sixth Amendment) Act, 1956, the Parliament enacted on 21-12-1956 the Act with a view to formulate principles (a) for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce outside a State or in the course of import into or export from India, (b) providing for the levy, collection and distribution of taxes on sale of goods in the course of inter-State trade or commerce, and (c) declaring certain goods to be of special importance in inter-State trade or commerce and specifying the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject.
11. The scheme of the Act was first to define 'Inter-State Sales' 'and 'Sales outside the State' and then to declare inter-State sales subject to tax and to set up machinery for levying and collecting tax on those sales. Transactions in goods which were made subject to tax in the course of inter-State trade or commerce were classified into three broad categories; (1) transactions falling within Section 8(1) i.e. all sales to Government, and sales to a registered dealer other than the Government of goods referred to in subsection (3) of Section 8; (2) transactions falling within Section 8(2)(a) i.e., sales in respect of declared goods; and (3) transactions falling within Section 8(2)(b), i.e., sales not falling within (1) in respect of goods other than declared goods. Sales of goods in category (1) were declared liable at the relevant time to pay a tax of two per cent, on the turnover. Now that rate has been increased from two per cent to three per cent of the turnover. On sales of declared goods tax has to be calculated at the rate applicable of the sale or purchase, of such goods inside the appropriate State. By Section 15, the tax payable under a State law in respect of any sale or purchase of declared goods inside the State was not to exceed two per cent (now three per cent) of the sale or purchase price thereof, and was not leviable at more than one stage. On turnover from sales of goods not falling within categories (1) and (2) the rate was seven per cent, which has now been increased to ten per cent, or the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever was higher.
But by Sub-section (2-A) of Section 8, it was provided that notwithstanding anything contained in Sub-section (1) or Sub-section (2), if under the sales tax law of the appropriate State the sale or purchase as the case may be, of any goods by a dealer is exempt from tax generally or is subject to tax generally ata rate which is lower than three per cent of the tax payable under the Act on the turnover in so far as the turnover or any part thereof relates to the sale of such goods shall be nil, or as the case may be, shall be calculated at the lower rate. Tax under the Act is payable by the seller. The State from which the movement of goods commences in the course of Inter-State sale collects the tax as agent of the Central Government and in the manner provided in Sub-section (2) of Section 9. By Sub-section (3) of Section 9 the proceeds in any financial year of any tax including any penalty levied and collected under the Act in any State other than a Union Territory on behalf of the Government of India are to be assigned to that State and are to be retained by it, and the proceeds attributable to Union Territories are to form part of the Consolidated Fund of India. Thus the Act and the constitutional provisions were intended to restrict the imposition of multiple taxation on a single inter-State transaction by different States, each State relying upon some territorial nexus between the State and the sale. The tax though collected by the State under the Central Sales Tax Act, it was as an agent of the Central Government and the tax collected was assigned to the State which collected it.
12. As observed by the Supreme Court in Nataraj Mudaliar's case, AIR 1969 SC 147 the Act is not a haphazard legislation; it is the product of deep thinking and clear analysis of the various-aspects of the matter. The object of Clause (b) of Section 8(2) providing for higher rate of taxation was to prevent as far as possible the evasion of sales tax. As seen from the report of the Taxation Enquiry Commission, the Parliament was anxious that inter-State trade should be canalised through registered dealers over whom the appropriate Government has a great deal of control. Section 8(2)(a) has been incorporated with a view to see that the consumers in the States to which goods are imported are not placed at a disadvantage as compared to the consumers in the State from which goods are imported. The purpose behind this sub-section is to see that the State Governments do not place the local consumers in a better position than the consumers outside.
13. The policy of the law has been clearly laid down in the Act. In the circumstances in which the Act was enacted the rate of taxation had to be linked with the rate of taxation under the Sales Tax Laws of the appropriate States if its purpose were to be served. Therefore, Section 8(2A) provided for exemption from taxation if under the State law the sales are exempt. The rates provided under the State law of the appropriate State are adopted for taxation in the cases falling under Sub-section (2) of Section 8; If the power to fix the rate of taxation could be delegated as laid downby the Supreme Court in Banarasidas's case, : 1SCR427 , the adoption of the rates of taxation in the Sales. Tax law of the appropriate State from time to time would not amount to abdication of essential legislative function.
14. Section 9(2) has adopted the procedure prescribed by the General Sales Tax law of the appropriate State in the matter of assess-ment, reassessment, collection and enforcement of payment of tax. The Act, if it had intended, could have delegated to the State Governments the power to frame rules providing for assessment, reassessment, collection and enforcement of payment of tax under the Central Sales Tax Act. Instead of doing so, by Section 9(2) the Act has adopted the procedure under the General Sales Tax law_ of the appropriate State. In adopting the procedural law of the State, the Parliament cannot be said to have abdicated its essential legislative function. Therefore the first ground urged by the learned counsel for the petitioner has to be rejected as untenable.
15. The second ground viz., that the Act must be deemed to have adopted the sales tax laws as in force when the Act came into force on 21-12-1956 is also, in our opinion, untenable. Section 2(1) has defined the expressions 'Sales Tax Law' and 'General Sales Tax Law' to mean the law for the time being in force in any State. The Legislature's intention is quite clear that it is not only the law in force when the Central Act was enacted but the State law in force from, time to time. With respect, we are unable to agree with the decision in Shah & Co. v. State of Madras, (1967) 20 STC 146 (Mad) that what has been adopted is only the law as it stood when the Act was enacted, since in our opinion, the Parliament was competent to adopt the State law not only as it existed at the time of the enactment of the Act but also as it may exist in future including amendments made, from time 'to time, where the adoption of law is with respect to rate of taxation and the procedural law for assessment and collection of tax. The Parliament, in our opinion, has not abdicated any of its essential legislative functions. Thus, both the grounds urged by the learned counsel for the petitioner fail.
16. For the reasons stated 'above, this writ petition fails and is dismissed with costs. Advocate's fee Rs. 100/-.
17. Petition dismissed.