1. The petitioner is a partnership firm dealing in molasses, Gur Lota, Rab Salawat and other commodities. It was assessed under the Central Sales Tax Act for the period October 10, 1962 to March 31, 1963 on the inter-State turnover of Gur Lota. For the assessment years 1963-64 to 1964-66 it was assessed under the same Act on the inter-State turnover for Gur Lota and also related commodities. The assessments were challenged in appeal. The petitioner contended that the turnover in question, if treated as turnover for the purposes of the U.P. Sales Tax Act, would not have been liable to tax under that Act because by reason of a notification under Section 8-A of the said Act, it was only the turnover in the hands of the manufacturer or importer of the commodity which attracted tax and the petitioner was neither a manufacturer nor the importer and consequently, it was submitted, it must also be considered as exempt under the Central Sales Tax Act. The contention did not find favour with the sales tax authorities. The petitioner now prays for relief under Article 226 of the Constitution.
2. During the pendency of the petition, the President of India promulgated the Central Sales Tax (Amendment) Ordinance, 1969. This has since been replaced by the Central Sales Tax (Amendment) Act, 1969. In view of the Amendment Act, permission was granted to the petitioner to amend the petition and a number of grounds have now been included challenging the constitutional validity of the Amendment Act, During the hearing of this petition, learned counsel for the petitioner has confined himself to those grounds alone,
3. To appreciate fully the contention raised before us, it is necessary, I think, to refer briefly to the legal position as it developed from stage to stage.
4. Considering the provisions of the Central Sales Tax Act, as originally enacted, the Supreme Court in State of Mysore v. Yeddalam Lakshminarasimhia Setty and Sons. 1965-16 STC 231 = (AIR 1965 SC 1510) expressed the view that if the turnover of a dealer was exempt from tax atany point of sale under the general sales tax law of the State it must also be considered exempt under the Central Sales Tax Act. This was a case relating to the assessment year 1957-58. Thereafter the Central Act was amended by the Central Sales Tax (Amendment) Act, 1958, in an attempt to make such turnover liable to tax under the Central Act even though it was exempt at a particular point of sale under the general sales tax law of the State. This Court, in Ram Narain Chandi Prasad v. Sales Tax Officer, Writ Petn. No. 1335 of 1967 decided by Oak C. J. and Pathak J., D/-14-5-1968 (All) expressed the view that the Amendment Act had succeeded in doing so. But in State of Kerala v. Pothan Joseph and Sons, 1970-25 STC 147 (SC) the Supreme Court reaffirmed the view taken in Yeddalam L. Setty and Sons, 1965-16 STC 231 = (AIR 1965 SC 1510) (supra) that in respect of both the levy and the assessment of tax on inter-State sales reference had to be made to the general sales tax law of the State.
5. Thereafter, the statute underwent a change. As already stated, on June 9, 1969, the Central Sales Tax (Amendment) Ordinance, 1969 was promulgated, and this was followed by the Central Sales Tax (Amendment) Act, 1969.
6. The Statement of Objects and Reasons appended to the Amendment Bill pointed out that the view taken by the Supreme Court in Yeddalam L. Setty and Sons, 1965-16 STC 231 = (AIR 1965 SC 1510) (Supra) and in subsequent cases indicated me necessity of amending the scheme expressed in the principal Act in order to give effect to the original intention of the law-makers that while the incidence of tax, the point of levy and the determination of turnover for the purpose of collecting the tax should be regulated by the Central Act, matters of a procedural nature such as the procedure for collection of tax and the machinery related thereto should be regulated by the State Act. At the same time, it was felt necessary to safeguard the interests of dealers who, relying upon the Supreme Court judgment in Yeddalam L. Setty and Sons, 1965-16 STC 231 = (AIR 1965 SC 1510) (supra), did not collect the tax from their customers.
7. Sub-section (1-A) was inserted, and was deemed to have been always inserted, in Section 6 of the principal Act, and read: '1-A. A dealer shall be liable to pay tax under this Act on the sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside the State.' In Section 8(2-A) of the principal Act, for the words 'notwithstanding anything contained in Sub-section (1) or Sub-section (2) the words 'notwithstanding anything contained in Sub-section (1-A) of Section 6 or in Sub-section (1) or Sub-section (2) of this Section' were substituted and were deemed to have been substituted with effect from October, 1, 1958.
Section 9 was completely re-enacted, it now read:
'9. Levy and collection of tax and penalties-
(1) The tax payable by any dealer under this Act on safes of goods effected by him in the course of inter-State trade or commerce, whether such sale falls within Clause (a) or Clause (b) of Section 3, shall be levied by the Government of India and the tax so levied shall be collected by that Government in accordance with the provisions of Sub-section (2), in the State from which the movement of the goods commenced:
Provided, that, in the case of a sale of goods during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods, the tax shall, where such sale does not fall within Sub-section (2) of Section 6, be levied and collected in the State from which the registered dealer effecting the subsequent sale obtained or, as the case may be, could have obtained, the form prescribed for the purposes of Clause (a) of Sub-section (4) of Section 8 in connection with the purchase of such goods. (2) Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, re-assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of India, assess, re-assess, collect and enforce payment of tax, including any penalty, payable by a dealer under this Act as if the tax or penalty payable by such a dealer under this Act is a tax or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax, liability of a person carrying on business as the transferee of, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, revisions, references, refunds, penalties, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly :
Provided that if in any State or part thereof there is no general sales tax law in force, the Central Government may, by rules made in this behalf make necessary provision for all or any of the matters specified in this sub-section. (3) The proceeds in any financial year of any tax, including any penalty, levied and collected under this Act in any State (other than a Union territory) on behalf of the Government of India shall be assigned to that State and shall be retained by it; and the proceeds attributable to Union Territories shall form part of the Consolidated Fund of India.'
The new Section 9 was deemed always to have been substituted for the original Section 9 in the principal Act.
8. While enacting the Amendment Act, Parliament considered it proper to grant some relief from the burden of the tax occasioned by the amendments introduced in the principal Act, and accordingly Section 10 of the Amendment Act exempted from tax those dealers who had effected inter-State sales between November 10, 1964 and June 9, 1969 and had not collected the tax from their customers on the ground that such tax was not leviable.
9. The first contention of the petitioner is that Article 301 of the Constitution is infringed inasmuch as inter-State trade and commerce is hampered by the Central Sales Tax Act as now amended. It is urged that the Act is not saved by Article 302, because the restrictions placed by it on the freedom of trade and commerce are not required in the public interest. It is further urged that even if it were saved by Article 302 it contravenes Article 303(1) because it gives, or authorises the giving of, preference to one State over another, and discriminates, or authorises the making of discrimination, between one State and another. That it does because while a sale within the State not effected by a manufacturer or importer is exempt from tax the corresponding inter-State sale has been made liable to tax.
10. Reading Articles 301, 302 and 303(1) together, the mandate which emerges is that trade, commerce and intercourse throughout the territory of India must be free but this is subject to such restrictions imposed by Parliamentary law as may be required in the public interest. The law, however, must not give, or authorise the giving of, any preference to one State over another or discriminate; or authorise the making of any discrimination, between one State and another by virtue of any entry relating to the trade and commerce in any of the Lists in the VIIth Schedule.
11. A number of cases have been cited by the petitioner to show how the Supreme Court and the High Courts have construed the provisions of Chapter XIII of the Constitution in relation to the levy of tax affecting the free flow of trade, commerce and intercourse throughout the territory of India, We are relieved of the necessity of examining all those cases in view of the recent decision of the Supreme Court in State of Madras v. N. K. Natraja Mudaliar, 1968-22 STC 376 = AIR 1969 SC 147 where the Court also considered its earlierpronouncements on the subject. It was a case where Sub-sections (2), (2-A) and (5) of Section 8 of the Central Sales Tax Act were assailed on the ground that they infringed Article 301 and Article 303(1) of the Constitution. Although the Supreme Court had before it the Central Sales Tax Act as it stood before its amendment in 1969, the observations of the Court are especially pertinent and may be briefly summarised. Shah J., speaking for himself, Mitter and Vaidialingam, JJ., pointed out that:
'That 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 was as an agent of the Central Government, it was, by Sub-section (4) of Section 9 enacted in implementation of the principle of assignment of tax set out in Clause (2) of Article 269, assigned to the State which collected it,'
According to the learned Judges it must be taken as settled law that restrictions or impediments which directly and immediately impede or 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 must be regarded as void. It must also be taken as settled law that a tax may in certain cases directly and immediately restrict or hamper the now of trade, but every imposition of tax does not do so. Tax under the Central Sales Tax Act on inter-State sales is in its essence a tax which encumbers movement of trade or commerce, but it is open to Parliament in view of Article 302 to impose such restrictions on the freedom of trade, commerce and intercourse between one State and another or within any part of the territory of India as may be required in the public interest. It was also observed that the 'exercise of the power to tax may normally be presumed to be in the public interest'. It was urged before the Supreme Court that the impugned legislative provision contravened Article 303(1) inasmuch as it constituted a law made by Parliament giving or authorising the giving of preference to one State over another but the learned Judges, after examining the nature of the Central Sales Tax levy, opined that.
'an Act which is merely enacted for the purpose of imposing tax which is to be collected and to be retained by the State 'was not' a law giving, or authorising the giving of, any preference to one State over another, or mating, or authorising the making of, any discrimination between one State and another, merely because varying rates of tax prevail in different States.'
It will be noticed that the attack was based on the contents of Sub-sections (2), (2-A)and (5) of Section 8 of the Central Sales Tax Act, the application of which depended on related provisions of the State Act. Emphasis was lent to this conclusion by the observation that:
'The Central Sales Tax though levied for and collected in the name of the Central Government is a part of the sales tax levy imposed for the benefit of the States. By leaving it to the States to levy sales tax in respect of a commodity on intra-State transactions no discrimination is practised; and by authorising the State from which the movement of goods commences to levy on transactions of sale Central Sales Tax, at rates prevailing in the State, subject to the limitation already set out, in our judgment, no discrimination can be deemed to be practised.'
Bachawat, J., in the same case, saw no distinction on principle between tax on intra-State and tax on inter-State sales in their effect upon Article 301. Neither tax, he said, operated directly or immediately on the free flow or trade or the free movement or the transport of goods from one part of the country to the other. Consequently, he held that the Central Sales Tax Act did not offend Article 301 as none of its provisions directly impede the movement of goods or the free flow of trade. In any event, he pointed out, it was certainly a law made by Parliament in the public interest and was saved by Article 302, and there was nothing in the Act which offended Article 303(1). Hegde, J. in his Judgment, referred to the reasonably sufficient safeguards provided by the provisions of the Act for the free flow of trade into a State, and deduced thereby that none of the impugned provisions had any direct or immediate impact on inter-State trade or commerce.
12. The petitioner says that the amended Central Sales Tax Act, by levying tax on inter-State sales where no tax is levied on intra-State sales, imposes restrictions on the freedom of trade, commerce or intercourse which cannot be justified in the public interest. The entire basis of this submission is that by confining the levy of tax to the point of sale by the manufacturer or importer only and by refraining from levying the tax at other points of sale the State Government had clearly indicated that it needed no more revenue than that flowing from the single point taxed by it, and inasmuch as the Central Sales Tax is levied entirely for the benefit of the State it cannot be said to have been required in the public interest.
There can be no dispute that by reason of Article 269(1)(g) the tax recovered in inter-State sales must be assigned to the States, Effect has been given to that provision by Section 9 Sub-section (4) of the Central Sales Tax Act which provides that the proceeds in any financial year of any tax levied and collected under that Act inany State on behalf of the Government of India shall be assigned to that State and shall be retained by it. The question to be considered is whether the decision of the State Government to tax intra-State sales at one point only, and not at other points also, demonstrates that the State is not in need of further revenue. In my opinion, the circumstances that the State Government has confined the levy of tax to a single point only and exempted it at other points of sale cannot at all lead to the inference that it is not in need of further revenue. The confining of the levy to a single point may proceed from a variety of considerations, which may include considerations of administrative convenience, of the beneficial effect upon the trade of a single point levy instead of a multi point levy, and so on A State Government may be in need of further revenue, but having regard to the needs of the trade it may consider it expedient not to raise further revenue from the intra-State sales of certain commodities. It is urged that the State Government did not request Parliament to provide for the levy of the tax on the inter-State sales by enacting the Amendment Act. There is nothing on the record to substantiate this submission. I find it difficult to assume that a fiscal measure enacted by Parliament for the benefit of a State would not be viewed with favour by the Government of that State.
13. It was pointed out by the Supreme Court in AIR 1969 SC 147 at p. 155 that 'there can be no doubt that exercise of the power to tax may normally be presumed to be in the public interest'. That presumption has not been rebutted by the petitioner. Accordingly, the impugned legislation would fall within the protection of Article 302. That would be so unless it contravenes Article 303(1), and as it is the contention of the petitioner that it does that contention may now be examined.
14. As has already been pointed out, the petitioner says that Article 303(1) is contravened because by imposing a levy on inter-State sales when it has been exempted from intra-State sales (excepting at the point of sale by the manufacturer or importer) the impugned legislation gives preference to one State over all others and discriminates in favour of that State against others. It is urged that the effect of the impugned legislation is to encourage intra-State sales and discourage inter-State sales. The petitioner points out that there was a state of equilibrium so long as the scheme of rate-fixing under the Central Sales Tax Act stood as it did before the amendments introduced in 1969. It is pointed out, proceeding on the construction adopted by the Supreme Court in Yadalam L. Setty and Sons, 1965-16 STC 231 =(AIR 1965 SC 1510) (supra), that the exemption from Central Sales tax of an inter-State sale at a certain point, because of the exemption granted by a State Sales Tax Act to an intra-State sale at that point, brought about a parity in the tax incidence between inter-State sales and intra-State sales, thus establishing an equilibrium which would safeguard the free flow of trade within the State and across its boundaries. It is contended that by inserting Sub-section (1-A) in S. 6 this equilibrium has been destroyed.
15. Upon careful consideration, it appears to me that the contention is misconceived. There can be no question of the Act giving preference to one State over another or discriminating between one State and another when it is a Central statute operating throughout the land. Any benefit enjoyed by one State is enjoyed by all others. So also any disadvantage suffered by one State under the Act is suffered by all others. Then, to infer that the imposition of tax on inter-State sales where it has been exempted in respect of intra-State sales will necessarily impede the flow of trade is to oversimplify the complicated factors which influence the flow of trade. As the Supreme Court observed in Nataraja Mudaliar, AIR 1969 SC 147 (supra):
'The flow of trade does not necessarily depend upon the rates of sales tax --it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade. Instances can easily be imagined of cases in which notwithstanding the lower rate of tax in a particular part of the country goods may be purchased from another part, where a higher rate of tax prevails. Supposing in a particular State in respect of a commodity, the rate of tax is 2 per cent, but if the benefit of that low rate is offset by the freight which a merchant in another State may have to pay for carrying that commodity over a long distance, the merchant would be willing to purchase the goods from a nearer State even though the rate of tax in that State may be higher. Existence of longstanding business relations, availability of communications, credit facilities and a host of other factors--natural and business--enter into the maintenance of trade relations and the free flow of trade cannot necessarily be deemed to have been obstructed merely because in a particular State the rate of tax on sales is higher than the rates prevailing in other States.'
16. Moreover, in my opinion, there can be no legitimate apprehension that inter-State sales well be discouraged to the benefit of intra-State sales. In spite of the levy introduced by the Central Act it is always open to the State from which the inter-State sale commences to waive the benefit from the operation of the Act if it finds it expedient to do so. Due importance must be given to Section 8(5) of that Act which empowers the State Government to direct, where it is satisfied that the public interest requires it, that in respect of any goods or classes of goods no tax under the Central Act shall be payable by any dealer having his place of business in that State in respect of the sale by him from any such place of business of any such goods in the course of inter-State trade and commerce, or the tax on such sales shall be calculated at lower rates than those specified in Sub-sections (1) and (2) of Section 8. There can be little doubt that the State, in the interests of internal economy, will be disposed to exercise this power if it considers it expedient to do so.
The considerations which may impel a State may be gathered from the observations of the Supreme Court in Nataraja Mudaliar, AIR 1969 SC 147 (supra):
'The rate which a State Legislature imposes in respect of inter-State transactions in a particular commodity must depend upon a variety of factors. A State may be led to impose a high rate of tax on a commodity either when it is not consumed at all within the State or if it feels that the burden which is falling on consumers within the State will be more than offset by the gain in revenue ultimately derived from outside consumers. The imposition of rates of sales tax is normally influenced by factors political and economic. If the rate is so high as to drive away prospective traders from purchasing a commodity and to resort to other sources of supply, in its own interest the State will adjust the rate to attract purchasers. Again, in a democratic constitution political forces would operate against the levy of an unduly high rate of tax. The rate of tax on sales of a commodity may not ordinarily be based on arbitrary considerations but in the light of the facility of trade in a particular commodity, the market conditions--internal and external--and the likelihood of consumers not being scared away by the price which includes a high rate of tax. Attention must also be directed to Sub-section (5) of Section 8 which authorises the State Government, notwithstanding anything contained in Section 8, in the public interest to waive tax or impose tax on sales at alower rate on inter-State trade or commerce. It is clear that the legislature has contemplated that elasticity of rates consistent with economic forces is clearly intended to be maintained.'
17. Reliance was placed by the petitioner on Firm Mehtab Majid & Co., v. State of Madras, AIR 1963 SC 928 and A.H. Abdul S. & Co. v. State of Madras, AIR 1964 SC 1729. But these are both cases where under the same sales tax law of the State discriminatory rates were imposed between hides and skins tanned and sold within the State and hides and skins imported from outside of the State. On that ground, those two cases are distinguishable. We were also referred to State of Madhya Pradesh v. Bhailal Bhai, AIR 1966 SC 1006. It seems to me that on substantially the same ground this case is also distinguishable.
18. In my opinion, the contention of the petitioner that the impugned legislation contravenes Articles 301 and 303(1) of the Constitution must be rejected.
19. The next contention of the petitioner is that Section 6 (1-A) and Section 9. enacted by the Amendment Act, violate Article 19(1)(g) of the Constitution inasmuch as the levy of tax imposes a restriction on the petitioner's fundamental right to carry on his trade or business, which restriction is neither reasonable nor in the interest of the general public within the meaning of Article 19(6). A question such as this arose before the Supreme Court in Khyerbari Tea Co. v. State of Assam, AIR 1964 SC 925 at p. 929 in relation to Article 304(b) of the Constitution. The Supreme Court examined the question in the light of the considerations applicable to Article 19(1)(g) and Article 19(6). The Court observed:
'........... as soon as the validityof a tax law is challenged under Article 19, the State would be entitled to rely on the fact that revenue raised by the law serves public purpose and that is its basic justification for being treated as a reasonable restriction on the individual's fundamental right under Article 19(1)(g) ......... In this context, it may, however, be legitimate to bear in mind that the revenue is required by the State to raise money in order to carry on the function of government and to sustain the manifold welfare activities undertaken by it.'
And at another place in the same judgment, it said:
'It is, of course, true that the validity of tax laws can be questioned in the light of the provisions of Articles 14, 19 and Article 301 if the said tax directly and immediately imposes a restriction on thefreedom of trade; but the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Articles 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,'
20. I have already referred to the dictum of the Supreme Court in Nataraja Mudaliar, AIR 1969 SC 147 (supra) that the exercise of the power to tax may normally be presumed to be in the public interest.
21. In the case before us the petitioner's submission is that as the State Government taxed intra-State Sales at a single point only it is evident that it did not need further revenue, and therefore the impugned legislation is not in the public interest. That submission has already been rejected when considering the submission in relation to Article 302. For the same reasons it must be rejected in relation to Article 19(1)(g). It cannot be disputed that the levy is not confiscatory or extortionate. When that is so, then as the Supreme Court pointed out in Assistant Commr. of Urban Land Tax v. Buckingham and Carnatic Co. Ltd., AIR 1970 SC 169 at p. 179:
'The reasonableness of the tax cannot be questioned.'
22. I see no force in the second contention of the petitioner and accordingly reject it.
23. The third contention of the petitioner is that as Section 6(1-A) has been enacted with retrospective effect it infringes the petitioner's fundamental right to property under Article 19(1)(f) of the Constitution inasmuch as it will unreasonably deprive the petitioner of money belonging to him. It is well settled that the mere retrospective operation of a tax law does not per se involve the contravention of a citizen's fundamental right under Article 19(1)(f) or (g). Jawaharmal v. State of Rajasthan, AIR 1966 SC 764 at p. 772. But it is equally well settled that although, the legislature can pass a law, making its provisions retrospective it will be relevant to consider the effect of the retroactive operation of the law in respect of the reasonableness of the restrictions imposed by it. The question was considered by the Supreme Court at some length in Rai Ramkrishna v. State of Bihar, AIR 1963 SC 1667 where the test of reasonableness was examined in the context of Article 19(1)(f) and (g) as well as Article 304(b). It was observed:
'It is, of course, true that the power of taxing the people and their propertyis an essential attribute of the Government and Government may legitimately exercise the said power by reference to the objects to which it is applicable to the utmost extent to which Government thinks it expedient to do so. The objects to be taxed so long as they happen to be within the legislative competence of the Legislature can be taxed by the Legislature according to the exigencies of its needs, because there can be no doubt that the State is entitled to raise revenue by taxation. The quantum of tax levied by the taxing statute, the conditions subject to which it is sought to be recovered, are all matters within the competence of the Legislature, and in dealing with the contention raised by a citizen that the taxing statute contravenes Article 19, Courts would naturally be circumspect and cautious.'
24. The essential basis of the petitioner's contention that his fundamental right under Article 19(1)(f) is contravened is that Section 6(1-A) introduces a new levy for the first time and does not merely give effect to the original intention of the framers of the Central Sales Tax Act. Because it is a new levy retrospectively imposed, it is urged distinct provision should have been made or appropriate machinery for assessing and collecting the tax. I think it necessary to clear the position in this regard at once. The history of the legislation indicates that the object always was that as regards the incident of tax, the point of levy and the determination of the turnover reference was to be made to the Central Act while matters of a procedural nature such as the procedure for collection of tax and the machinery related thereto should be regulated by the State Act. There was considerable difference of opinion whether the object was achieved by the Central Act as it then stood, and when the Revenue persisted in levying tax on the basis that it did the dispute was carried to the courts. The Courts in India did not speak with one voice in the matter. The opinions expressed by the Madras High Court in Mariappa Nadar v. State of Madras. 1962-13 STC 371 = (AIR 1962 Mad 290) and Abbas & Co. v. State of Madras, 1962-13 STC 433 = (AIR 1962 Mad 457) by the Kerala High Court in Parvati Mills (Pvt.) Ltd. v. State of Kerala, 1962-13 STC 927 (Ker) by the Andhra Pradesh High Court in Surya Trading Firm v. State of Andhra Pradesh, 1963-14 STC 720 (AP) and by this Court in M/s. Ram Narain Chandi Prasad. W. P. No. 1335 of 1967, D/-14-5-1968 (All) (supra) support the stand taken by the Revenue. Indeed, the Supreme Court found itself divided on the point in Yaddalam L. Setty and Sons1965-16 STC 231 = (AIR 1965 SC 1510) (supra), and Shah, J., though in the minority, upheld the case pleaded by the Revenue. It was not a new levy in the sense that it had never been heard of before. All that can be said is that there was uncertainty in the law on that point until it was removed by the Supreme Court, And thereafter the Amendment Ordinance, and subsequently the Amendment Act, were passed in 1969.
25. To support the submission that in the absence of an appropriate machinery for assessing and collecting the levy under Section 6 (1-A) the levy is ultra vires the petitioner relies upon Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552 at p. 559, Jagannath Baksh Singh v. State of Uttar Pradesh. AIR 1962 SC 1563 at p. 1570 and Rai Ramkrishna, AIR 1963 SC 1667 at. p. 1673 (Supra), There can be no doubt that an imposition of tax in the absence of a prescribed machinery and a prescribed procedure could partake of the character of a purely administrative affair and could, therefore, be challenged as contravening Article 19(1)(f). In the instant case, however, once full effect is given to the retrospectively (sic) of Section 6 (1-A) and the other related provisions introduced by the Amendment Act it cannot be legitimately disputed that the adequate machinery exists for the assessment and collection of the tax. The effect of bringing the impugned provisions into retrospective operation is to make them instinct with life from an earlier date, and being living provisions operative from that date all the machinery provisions contained in the Act can be employed even as in the case of provisions enacted in fact from the very beginning.
26. It is then urged that when the petitioner entered into inter-State sales in earlier years it could not have foreseen that the Amendment Act of 1969 would be enacted bringing into effect provisions operating directly in respect of those sales. In an ordinary case when a dealer is aware of his liability to tax he passes that burden on to the customer and collects the tax from him. It is said that the retrospective operation of the impugned legislation unreasonably deprives the petitioner of money which he may now have to pay from the profits earned or the capital belonging to him. It has already been seen that the Revenue was all along proceeding on the basis that tax could be levied, and the decisions of some of the High Courts lend support to that view. It cannot be said, in the circumstances, that the dealers were not acquainted with the need to recover the tax fromtheir customers. It is further urged that it is no longer possible for the dealers to take advantage of the concessional rate of tax provided by Section 8(1) of the Central Sales Tax Act, as it is unreasonable to expect them to obtain C forms from the customers to whom they had sold the goods. In view of what I have already said, this objection has no force. The C forms could have been obtained by the dealers from the customers in view of the position adopted by the Revenue that the sales were taxable.
27. Finally, it is pointed out that the retrospective operation of the impugned legislation extends over a long period and on that ground it must be held to be unreasonable. Such a contention was raised before the Supreme Court in Rai Ramkrishna, AIR 1963 SC 1667 (supra) and was repelled. The Court observed:
'We do not think that such a mechanical test can be applied in determining the validity of retrospective operation of the Act. It is conceivable that cases may arise in which the retrospective operation of a taxing or other statute may introduce such an element of unreasonableness that the restrictions imposed by it may be open to serious challenge as unconstitutional; but the test of the length of time covered by the retrospective operation cannot, by itself, necessarily be a decisive test.'
It is necessary to point that the bar of limitation prescribed by the General Sales Tax Law of the State will ordinarily apply with as much force to an assessment of tax under Section 6 (1-A) of the Central Act as it does to the assessments made under the original provisions of the Act. If it is deemed that Section 6 (1-A) exists from the outset it must be deemed to be so for all purposes, and that includes the period of limitation for taking assessment proceedings.
28. I am of opinion that the impugned legislation cannot be successfully assailed on the ground that it violates the petitioner's fundamental right under Article 19(1)(f) of the Constitution.
29. The further contention of the petitioner is that the retrospective operation of the impugned legislation infringes Article 14 of the Constitution. This contention proceeds entirely on the assumption that a new levy has been introduced in the Act for the first time and that therefore, a distinction has been made between dealers brought within the net of this levy and those against whom no action can be taken because they were not assessed and the bar of limitation precludes their assessment now. It seems to me that if any classification ariseshere it is because of the expiry of the period of limitation and not because of the enactment of Section 6 (1-A). Section 6 (1-A) applies equally to all, and equally it is open to all dealers to invoke the bar of limitation against assessment proceedings pursuant to Section 6 (1-A) wherever such bar of limitation is available. An attempt was made to classify dealers between those against whom originally assessment proceedings had been initiated in respect of such inter-State sales but they had not been assessed ultimately on the ground that they were not liable to assessment, those who had been assessed and taxed on such sales and those in respect of whom no proceedings had been taken at all. I am unable to see how any such classification is justified. Of those dealers against whom no assessment proceedings were initiated at all or against whom assessment proceedings were taken but they were not assessed on the ground that no levy could be made, now by virtue of Section 6 (1-A) it is open to the Sales Tax Authorities to proceed to assess the escaped turnover if the general sales tax (law of the State empowers them to take proceedings for assessing escaped turnover and such proceedings are not barred by limitation. Under the U.P. Sales Tax Act. Section 21(1) seems to empower |the sales tax authorities in that behalf. Of those dealers who have been assessed already no fresh assessment proceedings are necessary.
30. In my opinion, the challenge levelled by the petitioner against the impugned legislation on the ground that by its retrospective operation it infringes Article 14 of the Constitution must fail.
31. The last contention of the petitioner is that Section 10 of the Amendment Act violates Article 14 of the Constitution inasmuch as it exempts from liability only those dealers who had not collected tax on inter-State sales between November 10, 1964 and June 9, 1969 on the ground that no such tax could have been levied or collected in respect of such sales. Section 10 provides:
10. Exemption from liability to pay tax in certain cases-
(1) Where any sale of goods in the course of inter-State trade or commerce has been effected during the period between the 10th day of November, 1964 and the 9th day of June, 1969, and the dealer effecting such sale has not collected any tax under the principal Act on the ground that no such tax could have been levied or collected in respect of such sale or any portion of the turnover relating to such sale and no such tax could have been levied or collected if the amendments made in the principalAct by this Act had not been made, then, notwithstanding anything contained in Section 9 or in the said amendments, the dealer shall not be liable to pay any tax under the Principal Act, as amended by this Act, in respect of such sale or such part of the turnover relating to such sale.
(2) For the purposes of Sub-section (1) the burden of proving that no tax was collected under the principal Act in respect of any sale referred to in Sub-section (1) or in respect of any portion of the turnover relating to such sale shall be on the dealer effecting such sale.'
The petitioner says that Section 10 creates a class of dealers different from (a) dealers who entered into inter-State sales concerning such commodity before November 10, 1964. (b) dealers who entered into such sales between November, 1964, to June 9, 1969 and collected tax thereon and (c) dealers who also entered into such sales during that period and did not collect tax but not on the ground that it was not leviable. There can be no doubt that the classification embodied in Section 10 excludes the three categories pointed out by the petitioner. The question before us is whether the classification is not reasonable and related to the object of the Act. It will be recalled that it was on November 10, 1964 that the Supreme Court delivered judgment in Yaddalam L. Setty and Sons, 1965-16 STC 231 (SC) (supra) and thereby for the first time the legal position was made certain. By virtue of Article 141 of the Constitution, the law so declared is binding on all courts throughout the land. Until, then, as I have already pointed out, the position in law had remained uncertain. The Revenue insisted on its right to tax while the dealer protested his exemption. The High Courts had also differed. It was only with the judgment of the Supreme Court on November 10, 1964 that the legal position acquired certainty and a uniform interpretation operative throughout the land was available. The date November 10, 1964, was therefore, a reasonable line to draw for the purpose of granting exemption under Section 10. The other terminal date is June 9, 1969, when the Central Sales Tax (Amendment) Ordinance 9, 1969, was promulgated by which the relevant amendments in the Central Act were made.
32. Parliament intended to relieve from the burden of tax those dealers who, in the belief that the judgment of the Supreme Court in Yaddalam L. Setty & Sons, (1965) 16 STC 231 = (AIR 1965 SC 1510) (supra) laid down the correct law, had proceeded on the basis that tax was not leviable and had, therefore, not collected it from their customers. Theyare dealers who refrained from collecting the tax acting on the assurance flowing from a judicial pronouncement of the highest Court of the land that tax was leviable. Dealers falling outside the category contemplated by Section 10 are those who, when entering into the inter-State sales, would have done so under the impression that the sales were taxable.
33. Now, the object of the Amendment Act was to remove those shortcomings in the principal Act exposed as a result of judicial interpretation. That appears from the Statement of Objects and Reasons. It became necessary for Parliament to amend the principal Act and also to validate all that was done in the purported exercise of the powers under it. The classification created by Section 10 is related to the object of the Act. It is a part of the scheme embodied in it. It carves out and exempts' from the burden resulting from the amendment of the principal Act a class of dealers who were entitled in justice and fairness to be relieved from that burden. In my opinion, it cannot be said that Section 10 creates a classification which violates Article 14 of the Constitution.
34. Considerable emphasis was laid by the petitioner on the difficulty of determining whether a dealer had refrained from collecting tax on the ground that the tax could not be levied and, it was said, that therefore the classification was unreasonable. Now, the burden of making out a case for exemption has been laid by Section 10(2) upon the dealer and it will always be a matter of proof whether the dealer is entitled to the exemption claimed under Section 10(1). The claim to exemption falls to be examined upon objective consideration, and it will be for the dealer claiming the exemption to satisfy the authority concerned that all the conditions necessary to exemption have been fulfilled. The argument raised by the petitioner has, in my opinion, little relevance to the contention based on Article 14.
35. Upon the aforesaid considerations. I am of opinion that the challenge directed against the validity of Section 10 of the Amendment Act must fail,
36. No other contention has been raised before us.
37. The petition fails and is dismissed with costs.
T.P. Mukerjee, J.
38. I agree.
39. The facts of the case and the history leading to the passing of the Central Sales Tax (Amendment) Ordinance 1969 and the Central Sales Tax (Amendment) Act 1969 (hereinafter referred to as the Amend-ment Act) have been dealt with by Hon. Pathak, J. With profoundest respect for brother Pathak. J. I do not agree that Section 10 of the Amendment Act does not violate Article 14 of the Constitution. While it is not possible to exhaust the circumstances which may afford a reasonable basis for classification, yet broad tests laid down by the Hon. Supreme Court in 'Buddhan v. State of Bihar', AIR 1955 SC 191 are: (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group; and (ii) that the differentia is a rational relation to the object sought to be achieved by the situation in question. It is also settled law that retrospective levy is permissible. The retrospective levy may be of two kinds: (i) validating a levy by removing an infirmity, and (ii) levy a fresh tax. In either case, as laid down in Ramakrishna's case, AIR 1963 SC 1667 the tax so levied can be challenged both on the ground of legislative competence and also on the ground of reasonable discrimination. The legislative competence is not challenged. What is challenged is that the Act which imposed a tax in 1959 retrospectively with effect from 1958 is discriminatory and the classification given in Section 10 of the Amendment Act is not a reasonable classification.Section 10 reads as under:
'10. Exemption from liability to pay tax in certain cases-
(1) Where any sale of goods in the course of inter-State trade or commerce has been effected during the period between the 10th day of November 1964 and 9th day of June 1969 and the dealer effecting such sale has not collected any tax under the Principal Act on the ground that no such tax could have been levied or collected in respect of such sale or any portion of the turnover relating to such sale and no such tax could have been levied or collected if the amendments made in the Principal Act by this Act had not been made, then notwithstanding anything contained in Section 9 or in the said amendments, the dealer shall not be liable to pay any tax under the Principal Act, as amended by this Act, in respect of such sale or such part of the turnover relating to such sale.
(2) For the purposes of Sub-section (1) the burden of proving that no tax was collected under the Principal Act in respect of any sale referred to in Sub-section (1) or in respect of any portion of the turnover relating to such sale shall be on the dealer effecting such sale.'
Reading Sections 9 and 10 together it is clear that two classes of dealers havebeen envisaged by the Parliament: one class of dealers are those who have not collected tax from their customers and the other class is of those who have collected it. The Hon'ble Supreme Court in Yaddalam's case, 1965-16 STC 231 = (AIR 1965 SC 1510) had laid down that if the turnover of the dealer at any point of sale was exempt under the general Sales Tax Act of the State, it must be considered to be exempt from the Central Sales Tax Act. The Courts in India only interpret the law and the effect of the decision in Yaddalam's case, 1965-16 STC 231 = (AIR 1965 SC 1510) was that the levy of the tax was invalid and not that it became invalid from the date of the Supreme Court judgment. Section 10 does not mention that exemption is granted because the Supreme Court had disapproved the levy. The wordings of Section 10 are too general which go to show that if the dealer has not collected the tax on the ground that no such tax could have been levied or collected in respect of such sale then he is exempt from the payment of the tax for the period specified in the said section.
The effect of Sections 9 and 10 is that the dealers irrespective of the fact whether they have collected the tax or not will be liable to pay tax till 9-11-1964 whereas after that their liability will be only if they have collected it. If the object of the retrospective levy was simply to impose a tax for public purpose retrospectively then there was no point in exempting those who have not collected it after November 1964 and if the object, as is clear from Section 10, was to collect tax already realised by the dealers then there was no justification for fixing a demarcating line. The demarcating period which is only an arbitrary period has no relation with the object and is liable to be struck down on the ground of unreasonable discrimination.
40. It is argued that Section 10 is an exemption and as such is a concession to a class of persons only. This would be a fallacious approach because the structure of the tax cannot be dissociated from the exemptions for ascertaining the discriminatory character of the tax. The classification in order to be reasonable must have some relation to the object. The object has no relation with the date 10-11-1964, the date of the judgment of the Supreme Court. The object of Section 10 was to validate past recoveries so that the dealers who had collected the tax from their customers should not be able to digest the tax realised by them. If the intention of the Parliament as stated above was to validate the collected tax then, in spite of the fact that the Act was retrospective from the year1958 would not be hit by Article 14 or 19 of the Constitution. Except for the abovesaid finding of Hon'ble Pathak, J. I agree with the other parts of his judgment.
41. The result of my finding would therefore be that the exemption from liability to pay past tax due upto 9-6-1969 would be available to all those dealers who have not collected any tax in respect of such sale or any portion of turnover relating to such sale.
42. This writ petition is therefore allowed and impugned orders quashed with this direction that the assessing authority will re-assess and, in case the petitioner has not collected any tax for the period in dispute, he will not be liable to pay the tax in respect of the transactions in dispute. Under the circumstances of the case, costs will be on parties.
43. In view of the majority opinion, the petition is dismissed with costs.