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The Madras Mica Association and anr. Vs. the State of Andhra Pradesh and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petition Nos. 816 and 817 of 1964
Judge
Reported in[1970]25STC332(AP)
AppellantThe Madras Mica Association and anr.
RespondentThe State of Andhra Pradesh and ors.
Appellant AdvocateT. Lakshmaiah, ;T. Dhanurbhandu and ;V. Rajagopal Reddy, Advs.
Respondent AdvocateThird Government Pleader for Respondents 1 to 3
DispositionPetition dismissed
Excerpt:
.....purchase or sale takes place in the course of export or import of goods or in the course of inter-state trade or commerce. act it was made clear that so far as imposition of tax is con cerned, the said state act does not apply to the transactions specified in article 286(1) as clearly determined by the act of parliament. and that if the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported that directly affects the freedom of trade as contem plated by article 301. after considering the extent of freedom contemplated by article 301, having regard to the general scheme of the constitution as well as the particular provisions in regard to the taxing laws, at page 254, their lordships observed thus :thus considered, we think it would..........purchase or sale takes place in the course of export or import of goods or in the course of inter-state trade or commerce. article 286, which was incorporated in the constitution,. inter alia for regulating inter-state sale transactions, has undergone constitutional amendment as the language originally used had given occasion to controversy and conflict of views as to its true impact. the supreme court in state of bombay v. united motors (india) ltd. [1953] s.c.r. 1069 held that under the bombay sales tax act (24 of 1952), sales effected in bombay in relation to goods exported from the state were not taxable by the state of bombay but the importing state could validly levy tax on transactions of sale in the course of inter-state trade or commerce on persons who were residing outside the.....
Judgment:

Kumarayya, J.

1. These two writ petitions, one filed by a registered association, the Madras Mica Association, Gudur, represented by V. Dasa ratha Rami Reddy and the other by a member of the said association, Dasaratha Rami Reddy, himself in his individual capacity calling in ques tion the legality, constitutionality and validity of the Amendment Act 26 of 1961, seek for issue of a writ of mandamus to the State Government, the Commercial Tax Officer, Nellore, and the Deputy Commercial Tax Officer, Gudur, directing them to forbear from giving effect to the provi sions of the Second Amendment Act (26 of 1961) read with Sections 7(b) and 5 of the Andhra Pradesh General Sales Tax Act so far as they are applicable to the levy and collection of sales tax on mica and to refund the tax already collected under the said provisions.

2. Curiously enough notwithstanding that a direction is sought against collection of tax and also for refund of the tax already collected, these petitions do not specify the assessments made against the particular members of the association, the tax sought to be collected from them and the extent of tax which they claim back as levied and collected without authority of law. The averments in the petitions by and large, are confined to the constitutionality and invalidity of certain provisions of the Andhra Pradesh General Sales Tax Act as amended in 1961. The gravamen of the charge is that the second amendment introduced by the Amending Act 26 of 1961 is invalid for want of the President's assent; and read with Section 7(b) and Section 5 of the principal Act it contravenes the constitutional provisions, amongst others, contained in Part XIII and in articles 13, 14, 19 and 286.

3. The petitioner's claim that for the past several decades they were purchasing mica from various States including Andhra Pradesh and were exporting the same sometimes after subjecting it to manufacturing process and at times without it, to foreign countries like United Kingdom, United States of America, Russia, Japan, France, Germany etc. In fact their activity of export entailed a series of integrated transactions commencing from the agreement of sale with a foreign buyer followed by purchase of mica in various States and ending with all other requisite activities essen tial to give effect to the agreement. Before the impugned amendment of the Andhra Pradesh General Sales Tax Act, they were not liable to any tax at the point of their purchase in the State from the last dealer, but the amendment read with Sections 5 and 7(b) of the principal Act fixes the point of levy at the point of purchase by the last dealer who buys it in the State and the rate of the tax is Rs. 0.03 p. in the rupee. This levy according to the petitioners is an interference with the free flow of trade and commerce guaranteed by article 301 of the Constitution. Their further contention is that it is not capable of being justified under any of the articles in Part XIII whether on the ground of reasonableness or in the interests of the general public. On the other hand, it suffers from the vice of discrimination as well, inasmuch as, whereas mica imported from other States is not subjected, to this tax, that produced or manufactured in this State has been subjected to the said tax. The legislative in competence besides is quite patent, as under Section 7 of the principal Act read with the Amendment Act, goods exported to any place outside the territory of India and connected with trade and commerce with foreign countries are made liable to tax. That militates against article 286(1)(b) of the Constitution. That apart in pith and substance it is a legislation with, respect to item No. 41 enumerated in the Union List in the Seventh Schedule, which is within the exclusive domain of the Parliament. In a way it may even be said to be law with respect to duties enumerated in item 84 in the Union List.

4. Not merely this, even Section 5(2)(b) of the principal Act read in conjunction with the provisions contained in Section 7(b) and the second amending Act would spell inconsistency with articles 13 and 14 of the Constitution. Above all, the amending Act must be held to be void as it was not reserved for the consideration of the President in compliance with the requirement of article 200 of the Constitution.

5. These, in short, are the main grounds on the basis of which the petitioners contend that the amending Act read with Sections 5 and 7 of the principal Act is unconstitutional and void. They therefore request for a writ of mandamus for the reliefs already mentioned.

6. The respondents seriously contest the constitutional position as set up by the petitioners. They aver that, whereas the principal Act had subjected mica to a single point levy at the point of first purchase in the State, the Second Amendment Act of 1961 has subjected it to tax at the point of purchase by the last dealer, who buys in the State, at the rate of Rs. 0.03 p. in the rupee under Section 5(2)(b) read with the Second Schedule. Section 7 of the principal Act provides for the stage of levy of taxes in respect of imported and exported goods. In the case of mica exported out of the State and which is subjected to tax only at the point of purchase, the series of purchases are to be deemed to conclude at the stage of pur chase effected immediately before the export of mica. However the export sale, that is the last sale immediately occasioning the export of mica, is not sought to be taxed by the impugned Act. Certainly the tax on purchase by the last dealer in the State is not prohibited. By virtue of the imposi tion of tax on mica at the point, of last purchase within the State, the guarantee of freedom of trade, commerce and intercourse throughout the territory of India is not in any way affected. Article 304 empowers the Legislature of a State to impose on goods imported from other States any tax to which similar goods manufactured or produced in that State are subjected to. So long as the requirements of article 286 are satisfied the State law levying tax on goods produced within the State is beyond the reach of article 301. The contention of the respondents further is that inasmuch as the export sale is not sought to be taxed, it cannot be said that the provisions in 'question trench upon the domain of foreign trade and commerce. Even otherwise, the impugned law is one contemplated by entry 54 of List II. The discrimination alleged is not true. According to Section 5(2)(b) read with Schedule II in relation to mica the last dealer who actually purchased in the State is liable to tax irrespective of the question whether the goods are imported from other States or produced or manufactured in this State. The question of receiving assent from the President does not. arise as under article 200 there was no obligation cast on the Governor to withhold the assent and reserve the Bill for the consideration of the President. The pleas based on the violation of article 19(1)(g) and article 14 of the Constitution are without foundation. So also is the plea that the impugned legislation is in respect of duties and as such must be within the exclusive domain of the Parliament.

7. Thus having regard to the rival contentions, the main points falling for consideration are whether the amending Act militates against the provision of article 286 and further whether it is within the inhibition of Part XIII of the Constitution.

8. As the controversy essentially centres round the constitutionality of amendment of Schedule II with regard to item No. 6, mica, read with Sections 5 and 7 of the principal Act it is apt to notice the amendment so far as it is material for us at this very stage along with the said Sections. The amendment in question in the Schedule reads thus :

SCHEDULE II

Description Point of levy Rate of tax

of goods

Item No. 6. Mica. At the point of 3 naye

purchase by the paise in

last dealer who the rupee,

buys in the State.

9. Then Section 5(1) relates to levy of tax on sales or purchases of goods. It specifically provides for the levy of tax on a dealer if he has a requisite annual minimum turnover, and also on a casual dealer and an agent of a non-resident dealer irrespective of his minimum turnover. Sub-section (2)(b) refers to the rate at which tax is leviable and the point of purchase at which it is to be levied with regard to the goods specified in Schedule II. Section 7 refers to the levy of taxes in respect of imported and exported goods. Sub-clause (b) which refers to exports reads thus :

(b) In the case of goods exported out of the State to any place outside the territory of India or to any other State in India be deemed to conclude at the stage of sale or purchase effected immediately before the export of such goods.

10. These are the material impugned provisions which have to be considered.

11. The respondent in his counter, to which reference has been already made, has averred that the said provisions are not hit by article 286 as no tax is being levied on the purchase or sale which immediately occasions the export of mica. Section 7(b), of course, creates a fiction by saying that where in the case of any goods tax is leviable at one point in a series of sales or purchases, such series shall in the case of goods exported out of the State to any place outside the territory of India or from any other State in India be deemed to commence at the stage of sale or purchase effected immediately before the export of such goods. Certainly it does not mean that the levy is to be made on a sale or purchase which occasions the export. It is to be noted that the word 'before' and not 'at the time of export' is used. That apart, Section 38 of the Act clearly says that the Act does not apply when the purchase or sale takes place in the course of export or import of goods or in the course of inter-State trade or commerce. Article 286, which was incorporated in the Constitution,. inter alia for regulating inter-State sale transactions, has undergone constitutional amendment as the language originally used had given occasion to controversy and conflict of views as to its true impact. The Supreme Court in State of Bombay v. United Motors (India) Ltd. [1953] S.C.R. 1069 held that under the Bombay Sales Tax Act (24 of 1952), sales effected in Bombay in relation to goods exported from the State were not taxable by the State of Bombay but the importing State could validly levy tax on transactions of sale in the course of inter-State trade or commerce on persons who were residing outside the territory provided that the goods are delivered in the importing State for the purpose of consumption therein. The dealer in the exporting State was thus made amenable to the sales tax law of the importing State. This point was reconsidered in Bengal Immunity Co., Ltd. v. State of Bihar A.I.R. 1955 S.C. 661 and there the Supreme Court held that 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. This made it clear that inter-State sales were immune from taxation in the absence of any valid law made by the Parliament. As a result of this pronouncement situation had arisen where certain legislative and constitutional amendments became inevitable. An Ordinance was first promulgated, which was replaced by the Sales Tax Laws Validation Act (7 of 1956). Then the problem of tax on inter-State sales was examined by the Taxation Enquiry Commission. After the Commission had submitted its report, 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. Entry 54 in the State List was amended and substituted by the following entry :

Taxes on the sale, or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I.

12. There was also amendment in article 286. Explanation to Clause (1) of article 286 was omitted and clauses (2) and (3) were substituted by fresh clauses. Likewise in article 269(1), Clause (g) was added and certain other constitutional amendments were made. Article 286, after its amendment, reads thus :

(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place-

(a) outside the State; or

(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.

(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Clause (1).

(3) 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 Parlia ment by law to be of special importance in inter-State trade or com merce, 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.

13. Thus while imposing restrictions on the State laws levying a tax on the sale or purchase of goods where such sale or purchase takes place out side the State or in the course of import or export of goods, Parliament was given power to formulate by law principles for determining when a sale or purchase should be said to have taken place in any of the ways mentioned in Clause (1). Accordingly Parliament enacted on 21st December, 1956, the Central Sales Tax Act, 1956, with a view to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of import into or export from India. By that enactment it made provisions for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce, and declared certain goods to be of special importance in inter-State trade or commerce and specified the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subjected. Section 3 of that Act defines sale or purchase of goods in the course of inter-State trade or commerce. Section 4 specifies the conditions in which a sale or purchase of goods is to be deemed to have taken place outside a State. Section 5 refers to the conditions in which a sale or purchase of goods takes place in the course of import or export. Sections 6 to 13 relate to charging of tax and setting up machinery for levy of tax and incidental matters.

14. Thus by this enactment various provisions including the provision for determining the true scope of the expressions used in article 286(1) have been made by the Parliament. Further, by adding Section 38 in the A.P.G.S.T. Act it was made clear that so far as imposition of tax is con cerned, the said State Act does not apply to the transactions specified in article 286(1) as clearly determined by the Act of Parliament. As we have already stated, the scheme of the Parliamentary Act was first to determine definitions of '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 various categories. Section 38 of the A.P.G.S.T. Act, consistent with the provisions of the Parliamentary Act, has made the provisions of the A.P.G.S.T. Act in relation to those matters inapplicable.

15. So then, if any tax was imposed in contravention of these clear and unequivocal provisions, it was open to the petitioners to seek legal remedy. As already noticed, the petitioners have not referred to any assessment orders nor to the fact that they have been assessed to any particular tax in contravention of the provisions of Section 38 of the A.P.G.S.T. Act. It is idle to contend that Section 7 or Section 5 or the provisions of any Amendment Act could at all be in conflict with Section 38 of the A.P.G.S.T. Act. Even if there appeared to be any seeming inconsistency it could be resolved by a harmonious construction of the various provisions. In fact we see no inconsistency at all. The contention of the learned counsel that the taxes have been levied by the State in contravention of Section 38 of the A.P.G.S.T. Act, in the absence of any material to that effect, cannot be accepted nor reliance on the language of Sections 5 and 7 of the principal Act and the language of the amended provision of item No. 6 in Schedule II can be of any avail when they spell no inconsistency with Section 38. The argument based on article 286 cannot, therefore, merit acceptance.

16. The main contention of the learned counsel is that the imposition of sales tax on these transactions of sale or purchase which the petitioners have been carrying on, violates the freedom of trade, commerce and inter course declared by Part XIII of the Constitution. It is the case of the learned counsel that any tax that may be imposed on sales or purchases whether inter-State or intra-State per se affects the freedom of trade and commerce guaranteed by article 301. So then, unless it be said that the particular taxation laws are compensatory or regulatory or come within the savings of any of the provisions in Part XIII of the Constitution, their imposition cannot be justified as they are hit by article 301. It is the contention of the learned counsel that the taxes imposed by Section 5 read with Section 7 and the second amendment are neither regulatory nor compensatory and hence hit by article 301.

17. It is not easy to accept this contention having regard to the language of article 301. The law in this behalf also has been clarified by several decisions of the Supreme Court. Article 301 reads thus :

Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.

18. Of course, the language used in the article is of wide amplitude. It guarantees unhampered freedom of trade, commerce and intercourse throughout the territory of India subject, of course, to the other provi sions of Part XIII. This freedom contemplated is against the imposition of barriers or restrictions and having regard to the language of the provi sion which knows no other restrictions save those prescribed, the freedom is both in relation to inter-State and intra-State trade and commerce. That does not, however, mean that such barriers or restrictions as do not directly or immediately affect the movement of trade or commerce can come within the inhibition of article 301.

19. The question is to what extent article 301 operates to make trade and commerce free has been considered by the Supreme Court in several deci sions. One of the earliest of these cases is Atiabari Tea Co. Ltd. v. State of Assam A.I.R. 1961 S.C. 232. Gajendragadkar, J. (as he then was), speaking for himself and Wanchoo and Das Gupta, JJ., has observed that article 301, read in its proper context and subject to the limitations prescribed by the other relevant articles in Part XIII, must be regarded as imposing a constitutional limitation on the legislative power of Parliament and the Legislatures of the States, that it applies not only to inter-State trade, commerce and intercourse, but also to intra-State trade, commerce and intercourse; that the freedom of trade guaranteed by article 301 is freedom from all restric tions except those which are provided by the other articles in Part XIII; that the substance or content of freedom provided for by article 301 is larger than the freedom contemplated by Section 297 of the Government of India Act of 1935, and it includes movement of trade which is of the very essence of all trade and is its integral part; and that if the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported that directly affects the freedom of trade as contem plated by article 301. After considering the extent of freedom contemplated by article 301, having regard to the general scheme of the Constitution as well as the particular provisions in regard to the taxing laws, at page 254, their Lordships observed thus :-

Thus considered, we think it would be reasonable and proper to hold that restrictions, freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of article 301. The argument that all taxes should be governed by article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage bill may indirectly affect trade or commerce. We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by article 301 a rational and workable test to apply would be :

Does the impugned restriction operate directly or immediately on trade or its movement ?

20. In Automobile Transport Ltd. v. State of Rajasthan A.I.R. 1962 S.C. 1406, their Lordships of the Supreme Court further observed that regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304(b) of the Constitution. This again goes to suggest that unless the hindrance is direct and immediate, there can be no question of the appli cability of article 301.

21. The majority view taken on Atiabari Tea Co. Ltd. v. State of Assam A.I.R. 1961 S.C. 232 was reaffirmed by a unanimous court in Firm A.T.B. Mehtab Majid and Co. v. State of Madras A.I.R. 1963 S.C. 928.

22. So then, as held in State of Madras v. Nataraja Mudaliar A.I.R. 1969 S.C. 147, it must be taken as settled law that the restrictions or impediments which directly and immediately hamper the free flow of trade, commerce and intercourse fall within the prohibition imposed by article 301 and subject to the other provisions of the Constitution they may be regarded as void. Normally a tax on sale of goods, as observed in Andhra Sugars Ltd. v. State of Andhra Pradesh A.I.R. 1968 S.C. 599, does not directly impede the free movement or transport of goods. But there may be cases where it does so. The question then is whether the impugned levy comes under the said category, and if it does, whether it is saved or justified by the other provisions in Part XIII. In this connection we may notice here, though not in detail, the provisions of Part XIII of the Constitution.

23. Article 302 of the Constitution permits Parliament to impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. Article 303 prohibits preferential treat ment or discrimination. Article 304 permits reasonable restrictions on freedom of trade and commerce as may be required in the public interest. The other articles are not of much significance for our purpose. In fact, it is unnecessary for us to discuss the various articles of Part XIII when we are of the view that the impugned legislation does not fall within the inhibition of article 301 as it does not purport to directly impede the freedom of trade and commerce. We have discussed above with reference to the dictum of the Supreme Court, and it has been even laid down by this court in D.R. & B. Oil Mills v. State of Andhra Pradesh A.I.R. 1964 A.P. 266 on the basis of the said authority, that such taxes alone as hamper the freedom of trade or commerce are within the inhibition of article 301. This principle is too well settled to give any room for its misconception.

24. The petitioners have failed to establish that the impugned provisions levy any taxes which directly or immediately impede the movement of goods and thus affect trade, commerce or intercourse within the meaning of article 301. So the argument of the learned counsel based on article 301 is untenable in law.

25. The other arguments, 'which are merely incidental to this main con tention, need not come up for consideration at all as the main contention itself is thus negatived. The plea that the amendment is bad for want of assent of the President also does not stand on any firm ground. Article 200 relied on does not support the contention that it is obligatory on the Governor to reserve a Bill for the consideration of the President. Article 304 which in its proviso refers to a Bill or amendment to be introduced or moved in the Legislature of a State only with the previous sanction of the President, has no application to this case at all. Article 304 would have come up for consideration only if the conditions of article 301 were fulfilled. The other contention that the impugned legislation is out of the purview of entry 54 in the State List is devoid of all force. Nor is there any occasion in the facts and circumstances of the case to allege any infraction of right under articles 14, 19 etc. We are of the view that there are no merits in these writ petitions. We accordingly dismiss the same with costs. Advocate's fee Rs. 50 in each.


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