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Malayalam Plantations Ltd. and 3 ors. Vs. Additional Sales Tax Officer (i) and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKerala High Court
Decided On
Case NumberO.P. Nos. 2391 and 3243 of 1973, 28 of 1974 and 622 of 1975
Judge
Reported in[1980]45STC79(Ker)
AppellantMalayalam Plantations Ltd. and 3 ors.
RespondentAdditional Sales Tax Officer (i) and anr.
Appellant Advocate Menon and Pai (K.A. Nayar),;T.L. Viswanatha Iyer;and E.R. Venkiteswaran, Advs.
Respondent AdvocateAdv.-General
DispositionPettion dismissed
Cases ReferredIn State of Madhya Pradesh v. Bhopal Sugar Industries Ltd.
Excerpt:
.....is to take effect, or to have operation. there is still another test to be satisfied, viz. this certainly is overstepping the limits of extra-territoriality and retrospectivity as understood above and the tax must to that extent be bad. 3243 of 1973). the argument was that the madras dealer who sells in nilgiris or other parts of madras state prior to 1st november, 1956, receives the benefit of section 5(v) of the act, whereas if the same or different dealer in madras were to take his tea to willingdon island and auction the same in cochin, he does not enjoy the benefits of section 5(v) of the act. 13. all the objections urged in these writ petitions fail and they are dismissed with no order as to costs......writ petitions were that the act in question was beyond the legislative competence of the kerala state legislature; that even assuming that it was within the legislative competence of the state, the assessment and the demand for tax for the period from 1st april, 1957, to 30th september, 1957, were invalid (this was the argument specifically advanced in o.p. no. 2391 of 1973); and that the act is discriminatory, as, prior to 1st november, 1956, the dealers in the madras state are marked off into two categories, one selling their tea produced in nilgiris in cochin and getting the benefit of section 5(v) of the madras general sales tax act, and the other selling their tea after stocking them in willingdon island and selling them in auction at fort cochin, the latter not being entitled to.....
Judgment:

V.P. Gopalan Nambiyar, C.J.

1. These writ petitions attack the constitutional validity of the Madras General Sales Tax (Revival and Special Provisions) Act, 1971 (Kerala Act 14 of 1971), and the proceedings initiated in pursuance of its provisions. The position may be understood with respect to the facts in 0. P. Nos. 2391 and 3243 of 1973, which were the two writ petitions argued, the others being left to abide the fate of these writ petitions.

2. In O.P. No. 2391 of 1973, the petitioner, the Malayalam Plantations Limited, Cochin, is a company incorporated in England having its registered office in London. M/s. Harrisons and Crosfield Limited are the secretaries and agents of the company. It owns tea and rubber estates. By exhibit P1 order dated 23rd March, 1960, it was assessed to sales tax under the General Sales Tax Act, 1125, in respect of the assessment year 1957-58. By the decision of this Court in Malayalam Plantations Limited v. State of Kerala [1963] 14 S.T.C. 969, it was held that the company was not liable to sales tax in respect of tea stored in the godowns of Willingdon Island and sold in Fort Cochin, which was part of the Madras State till 1st November, 1956, and was governed by the Madras General Sales Tax Act till 1st October, 1957. That was because, it was an 'outside sale' under Article 286 of the Constitution and, therefore, not liable to be assessed under the State law. The same was held to be the position in respect of the company's sales of tea stored in Willingdon Island and sold at Calicut. Exhibit P2 is a copy of the judgment. After exhibit P2, the revised assessment exhibit P3 followed on 21st March, 1966, with a refund voucher exhibit P4. Thereafter, the State of Kerala passed the Madras General Sales Tax (Revival and Special Provisions) Act, 1971-the impugned Act, referred to, where necessary, as the Revival Act-a copy of the same has been marked as exhibit P5. Notice followed under the Act and objections were filed, after which exhibit P10 assessment order dated 5th April, 1973, was passed followed by the demand notices exhibits P11 and P12, all of which are sought to be quashed. The Kerala Act 14 of 1971 is sought to be declared as ultra vires and unconstitutional.,

3. In 0. P. No. 3243 of 1973, the petitioner is a plantation company owning tea estates. The practice followed by the petitioner was to store the produce in the godowns of M/s. Peirce Leslie and Co. Ltd. in Willingdon Island and sell them in auctions at Fort Cochin, which was in the Madras State. The petitioners were assessed to sales tax under the Travancore-Cochin General Sales Tax Act, 1125, for the years 1953-54 to 1957-58. But, under the three decisions of the Supreme Court, namely, the A.V. Thomas & Company's case [1963] 14 S.T.C. 363 (S.C.), the Malayalam Plantations' case [1964] 15 S.T.C. 665 (S.C.) and the Kil Kotagiri Tea & Coffee Estates' case [1965] 16 S.T.C. 467 (S.C.), it was held that in respect of such or similar transactions the sales in question were 'outside sales' under Article 286 of the Constitution not liable to be assessed to sales tax under the General Sales Tax Act, 1125. Following these rulings, the assessments made under the Travancore-Cochin General Sales Tax Act, 1125, were set aside. Meanwhile, perhaps ex abundanti cautela, parallel assessments in respect of these transactions had been made by the Sales Tax Officer at Mattancherry under the Madras General Sales Tax Act, 1939. Under Section 5(v) of that Act, as amended in 1956, exemption is granted from sales tax as follows:

5. Exemptions and reductions of tax in certain cases.-Subject to such restrictions and conditions as may be prescribed, including conditions as to licences and licence fees-....

(v) the sale of tea grown by the seller or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, shall be exempt from taxation under Section 3, Sub-section (1), if the sale is for delivery outside the Province and delivery is actually so made.

Against the assessments made under the Madras General Sales Tax Act appeals are stated to be pending. While so, the Kerala Act 14 of 1971 came into force, as published in the Gazette on 22nd May, 1971. The petitioner was called upon by exhibits P1 to P4 notices to file return. It filed this writ petition challenging the validity of the Act and praying to quash the notices.

4. The arguments advanced in these writ petitions were that the Act in question was beyond the legislative competence of the Kerala State Legislature; that even assuming that it was within the legislative competence of the State, the assessment and the demand for tax for the period from 1st April, 1957, to 30th September, 1957, were invalid (this was the argument specifically advanced in O.P. No. 2391 of 1973); and that the Act is discriminatory, as, prior to 1st November, 1956, the dealers in the Madras State are marked off into two categories, one selling their tea produced in Nilgiris in Cochin and getting the benefit of Section 5(v) of the Madras General Sales Tax Act, and the other selling their tea after stocking them in Willingdon Island and selling them in auction at Fort Cochin, the latter not being entitled to the benefits of Section 5, Clause (v), of the Madras Act, by reason of the provisions of the impugned Act. A special point was raised in O.P. No. 2391 of 1973 that the petitioner was not a 'dealer' at all and only a dealer was liable to pay sales tax. It was argued that he was only selling goods produced by him and, as such, he cannot be made liable for sales tax under the principles of the decisions in Deputy Commissioner of Agricultural Income-tax and Sales Tax, South Zone, Quilon v. Greenham Estate (P.) Limited [1969] 24 S.T.C. 424 (S.C.) and in Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Midland Rubber and Produce Co. Ltd. [1970] 25 S.T.C. 57 (S.C.).

5. Before examining these contentions we would stress that the three Supreme Court decisions, which we have referred to, and the decision of the Division Bench of this Court in the Malayalam Plantations' case [1963] 14 S.T.C. 969, had disclosed a void in the sales tax legislation of the State in respect of transactions of the type disclosed in all these writ petitions. The turnover in respect of sales in Fort Cochin was not liable to be assessed as it was an 'outside sale'. To meet the situation of such turnover escaping assessment, the Kerala State Legislature passed the impugned Act 14 of 1971. Section 1, Clause (3), enacted that the charging Section, Section 3 of the Act, shall be deemed to have come into force on the 1st day of October, 1957, and the remaining provisions of the Act shall be deemed to have come into force on the 1st day of April, 1951. Section 3 of the Act is as follows:

3. Revival of Madras Act 9 of 1939 and Rules made thereunder for certain purposes.-The Madras General Sales Tax Act, 1939 (Madras Act 9 of 1939) (hereinafter referred to as the Madras Act) and the Rules made thereunder are hereby revived and shall be, and shall be deemed always to have been, in force to the extent and subject to the special provisions hereinafter contained, for the purposes necessary for, or ancillary to, the levy, assessment, reassessment and collection (including appeals, reviews and revisions) of tax on the sales of tea and rubber made during the period commencing on and from the 1st day of April, 1951, and ending with the 30th day of September, 1957.

The explanation to Section 4 of the Act did away with the beneficial provisions of Clause (v) of Section 5 of the Madras Act as amended by Act 16 of 1956. The said explanation is as follows:

Explanation.-For the removal of doubts, it is hereby declared that nothing in Clause (v) of Section 5 of the Madras Act before its amendment by the Madras General Sales Tax (Third Amendment) Act, 1956 (Madras Act 15 of 1956), shall apply, or shall be deemed ever to have applied, in respect of sales to which this Act applies.

The revival of the Madras Act was thus subject to substantial modification.

6. We shall first deal with the argument of the legislative competence. It is well-settled by the decisions of the Supreme Court that the legislative competence must be judged with reference to the time of the passing of the legislation and not with respect to the time at which the legislative provision is to take effect, or to have operation. In A. Hajee Abdul Shukoor and Company v. State of Madras [1964] 8 S.C.R. 217, it was observed:

The only question that now remains for consideration is whether the State Legislature was competent to enact the provision of Sub-section (1) of Section 2 of the Act. Hides and skins had been declared under Act 52 of 1952 to be essential for the life of the community. Article 286(3) of the Constitution, as it stood before its amendment by the Constitution (Sixth Amendment) Act of 1956, on 11th September, 1956, read:

'No law made by the legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any, such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent.'

This provision, however, did not apply to the 1939 Act, which had been enacted much earlier than the commencement of the Constitution. By August 28, 1963, when the Act was enacted by the Madras Legislature, Article 286(3) had been amended and Act 52 of 1952 had also been repealed. Consequently, there was no constitutional requirement for the Act being reserved for the assent of the President before it could be enforced. It is contended for the petitioner that the Act really enacted for a period, when if passed, it had to receive the President's assent for its enforcement and that therefore the State Legislature could not even in 1963 enact this provision affecting the taxation law in respect of the sale or purchase of goods which were goods declared essential for the life of the community. We do not see why such a fetter be placed on the legislative power of the State Legislature. The State Legislature is free to enact laws which would have retrospective operation. Its competence to make a law for a certain past period depends on its present legislative power and not on what it possessed at the period of time when its enactment is to have operation. We therefore do not agree with this contention.

In Chandarana and Co. v. State of Mysore A.I.R. 1972 S.C. 217, the court observed:

19. We do not think that the above proposition has any application to the case in hand. The question here is whether the Mysore Legislature was competent in 1964 to impose tax on sales of textiles during the assessment period, namely, from October 1, 1957, to March 31, 1958, at a rate in excess of that specified in Section 15 of the Central Sales Tax Act, as it stood then, when textiles were not declared goods. We think that imposition of sales tax on textiles at the rate specified in the Second Schedule to the Act before they became declared goods was permissible for the Legislature of Mysore. The power of the legislature to retrospectively levy tax has not been controverted

20. There was no fetter on the power of the Legislature of Mysore on February 27, 1964, in enacting a measure imposing sales tax on the turnover of undeclared goods during the assessment period at the rate specified in the Second Schedule to the Act. It was because textiles became declared goods from April 1, 1958, that the. Mysore Legislature lost its power to tax the sales of textiles at a rate higher than that specified in Section 15 of the Central Sales Tax Act, as it stood at the relevant time. Though the goods on the sale of which tax was imposed remained the same in substance, their legal quality became different. As textiles were not declared goods before April 1, 1958, there was no inhibition on the part of the Mysore Legislature in subjecting the turnover of sales of textiles before that period to a tax higher than that specified in Section 15 of the Central Sales Tax Act.

21. The matter can be looked at from a different angle. As we have already indicated, by virtue of Section 5(5) of Act No. 9 of 1964, the substituted Sub-section (5A) was deemed to have been in the Mysore General Sales Tax Act always. The only limit on the power of a legislature to create a fiction is that it should not transcend its power by its creation. The limitation on the power of the Legislature of Mysore in 1964, when it enacted Act No. 9 of 1964, was that on the sale of declared goods it could not have imposed sales tax at a rate higher than that specified in Section 15 of the Central Sales Tax Act as it stood then. There was no limitation on its power to impose tax on the turnover of sales of textiles before April 1, 1958, when they were not declared goods.

Again in Rattan Lal and Co. v. Assessing Authority, Patiala A.I.R. 1970 S.C. 1742, it was stated:

12. We may now deal with some arguments which are common to both sets of cases before considering the case of the Haryana amendment. It is argued that the reorganisation of the State took place on November 1, 1966, and the amendment in some of its parts seeks to amend the original Act from a date anterior to this date. In other words, the legislature of one of the States seeks to amend a law passed by the composite State. This argument entirely misunderstands the position of the original Act after the reorganisation. That Act applied now as an independent Act to each of the areas and is subject to the legislative competence of the legislature in that area. The Act has been amended in the new States in relation to the area of that State and it is inconceivable that this could not be within their competence. If the argument were accepted, then the Act would remain unamendable unless the composite State came into existence once more. The scheme of the States Reorganisation Act makes the laws applicable to the new areas until superseded, amended or altered by the appropriate legislature in the new States. This is what the legislature has done and there is nothing that can be said against such amendment.

7. In view of the decisions referred to above, there is no force in the objection that the Kerala State Legislature is nut competent to legislate in respect of what became part of its territory on 1st November, 1956, and in relation to transactions anterior to that period.

8. Counsel for the petitioner in 0. P. No. 3243 of 1973, etc., relied on the provisions of Sections 119 and 120 of the States Reorganisation Act, which are as follows:

119. The provisions of Part II shall not be deemed to have effected any change in the territories to which any law in force immediately before the appointed day extends or applies, and territorial references in any such law to an existing State shall, until otherwise provided by a competent legislature or other competent authority, be construed as meaning the territories within that State immediately before the appointed day.

120. For the purpose of facilitating the application of any law in relation to any of the States formed or territorially altered by the provisions of Part II, the appropriate Government may, before the expiration of one year from the appointed day, by order make such adaptations and modifications of the law, whether by way of repeal or amendment, as may be necessary or expedient, and thereupon every such law shall have effect subject to the adaptations and modifications so made until altered, repealed or amended by a competent legislature or other competent authority.

Explanation.-In this section, the expression 'appropriate Government' means-

(a) as respects any law relating to a matter enumerated in the Union List, the Central Government; and

(b) as respects any other law,-

(i) in its application to a Part A State, the State Government, and

(ii) in its. application to a Part C State, the Central Government.

It was pointed out that the power under Section 119 is only a limited power to continue the provisions of the Madras General Sales Tax Act till it is repealed by a competent legislature. This, it was pointed out, had been done by the Kerala Act 12 of 1957, which repealed the Madras General Sales Tax Act, 1939, in so far as it applied to the Malabar area of the State, and extended the provisions of the Travancore-Cochin Act to that area on and from that date. It was argued that after these legislative actions, the limited power under Section 119 of the States Reorganisation Act had been exhausted, and thereafter there is no power to revive the Madras Act. It is impossible to agree. The right of continuance under Section 119 of the States Reorganisation Act is a limited and a transitory right, subject to the plenary powers of the legislature to repeal the law; and after such repeal, nothing except the constitutional barriers can limit the State Legislature's competence to legislate in respect of any part of its territory either prospectively or retrospectively. We may refer to State of Madhya Pradesh v. Bhopal Sugar Industries Ltd. [1964] 6 S.C.R. 846, where speaking with respect to the provisions of Section 119 of the States Reorganisation Act, it was observed:.Administrative reorganisation evidently could not await adaptation of laws, so as to make them uniform, and immediate abolition of laws which gave distinctive character to the regions brought into the new units was politically inexpedient even if theoretically possible. An attempt to secure uniformity of laws before reorganisation of the units would also have considerably retarded the process of reorganisation. With the object of effectuating a swift transition, the States Reorganisation Act made a blanket provision in Section 119 continuing the operation of the laws in force in the territories in which they were previously in force notwithstanding the territorial reorganisation into different administrative units until the competent legislature or authority amended, altered or modified those laws.

There is thus no force in the objection that the Madras General Sales Tax Act, 1939, cannot be revived after its repeal by the Kerala Act 12 of 1957.

9. Nor is there any force in the objection that the Act has been revived only from 1st October, 1957, and therefore the turnover for any anterior period cannot be assessed to sales tax under the revived Act. Although under Section 1(3) of the revived Act, the charging section, Section 3, is to have effect only from 1st October, 1957, that section itself enables the authorities to levy tax for the period commencing from 1st April, 1951, to 30th September, 1957, and there was thus power to assess such transactions. That such legislation, affecting past transactions, so to say, retrospectively, is possible, has been recognised by the Supreme Court in many decisions. See for instance M.P.V. Sundararamier and Co. v. State of Andhra Pradesh A.I.R. 1958 S.C. 468, Mt. Jadao Bahuji v. Municipal Committee, Khandwa A.I.R. 1961 S.C. 1486, and Government of Andhra Pradesh v. Hindustan Machine Tools Ltd. A.I.R. 1975 S.C. 2037. In view of the provisions of Section 3, there is no force in the contention of the counsel for the petitioners in O.P. No. 2391 of 1973 that the turnover from 1st April, 1957, to 30th September, 1957, is not, in any event, assessable.

10. Counsel for the petitioner in O.P. No. 3243 of 1973 strongly relied on the decision of the Full Bench of this Court in Ananthanarayana Iyer v. Agricultural Income-tax and Sales Tax Officer 1958 K.L.T. 1144 (F.B.). There, the Travancore-Cochin Agricultural Income-tax Act (22 of 1950) was amended by Act 8 of 1957 of the Kerala State Legislature, after the formation of Kerala State, so as to extend its provisions to the Malabar area of the State. The legality of the assessment to agricultural income-tax for the year 1957-58 in respect of the Malabar area fell for consideration. It was pointed out that the necessary precondition for assessment for the financial year commencing from 1st April, 1957, was that the taxable territory for the purpose of the Act was in being or existence during the whole of the previous year. This concept of taxable territory was embodied in Section 4 of the Act. It comprises the whole of the State area and nothing more. Under Section 4, the agricultural income of any previous year of any person from land situated within the State and received or derived from within or without the State was to be assessed to tax. It was having regard to this section that the Full Bench observed that the taxable territory for the purposes of the Act for the assessment year 1957-58 must be confined to the State limits as they existed during the previous year. Therefore, in so far as the Act gave retrospective effect from 1st April, 1957, so as to tax any income derived from the land in Malabar even prior to its becoming part of the Kerala State (viz., from 1st April, 1956, to 31st October, 1956), the legislation was held to be incompetent. These special considerations based on Section 4 of the Act and the concept of the income being relatable to the taxable territories within the State during a particular period, do not complicate the issue in this case. Counsel for the petitioner strongly relied on the observations, in paragraph 16 which are as follows:

16. It is no doubt true that we have here a law of taxation with respect to entry 46 in List II of the Seventh Schedule of the Constitution, viz., a topic assigned to the State Legislature, which enacted it. But that is only one test of its validity. There is still another test to be satisfied, viz., that the Act does not operate to any extent beyond the State's boundaries. For a State's power of taxation, however vast in its character and searching in its extent, is confined to subjects which are within its jurisdiction and the tax laws of a State can have no extra-territorial operation. We may also concede that the law of a State relating to assessments of taxes may have a retrospective effect. Still it is necessarily limited to persons, property or business within the jurisdiction and further it is only such tax as could have been authorised originally that could be levied retrospectively. Finally, it may be possible to accept the suggestion of the learned Advocate-General that the Act is prospective and not retrospective in its operation. See Queen v. St. Mary Whitechapel 116 E.R. 811 at 814, where it was observed that 'a statute is not properly called retrospective because a part of the requisites for its action is drawn from time antecedent to its passing'. But however viewed, whether as operating retrospectively or prospectively, the Act as made operative from 1st April, 1957, purports to levy for the first assessment year under it tax on income which is foreign both as derived and as received. This certainly is overstepping the limits of extra-territoriality and retrospectivity as understood above and the tax must to that extent be bad. The American case referred to by the learned Advocate-General is in the context not of much help. That was anyhow a case of inheritance taxes which are said to be excise taxes and involve also certain peculiarities. See Willis' Constitutional Law, page 698, and again the question involved was one of due process.

The ratio of the above decisions was that the Act, which was made operative from 1st April, 1957, assessed income which was foreign; and, to that extent, there was a transgression of the limits of extra-territoriality and retrospectivity; The principle has no application to the instant case. We overrule the plea of want of legislative competence for the revival of the impugned Act. That revival of a repealed Act is possible, was not contested. Indeed the exposition at page 419 of Craies on Statute Law (7th Edition) and at page 19 of Maxwell (12th Edition) amply support the position.

11. There is no substance in the plea of the counsel for the petitioner in 0. P. No. 2391 of 1973 that the petitioner is not a 'registered dealer' and therefore not liable to be assessed to the turnover. Under the charging section, viz., Section 3, the charge is laid on 'every dealer', and the provisions of the Act make it clear that registration is relevant only for the purpose of enabling a dealer to collect the tax-vide Section 2(b), Section 2(g-1), Section 3, Section 8-B and Section 5(v) of the Madras General Sales Tax Act, after its amendment in 1956. As for the plea that as a producer of tea, who takes his produce to the market and sells the same as part of the agricultural operations to make it marketable, the petitioner would not be liable to sales tax within the principle of the decisions in Deputy Commissioner of Agricultural Income-tax and Sales Tax, South Zone, Quilon v. Greenham Estate (P.) Ltd. [1969] 24 S.T.C. 424 (S.C.) and Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Midland Rubber and Produce Co. Ltd. [1970] 25 S.T.C. 57 (S.C.), we find that the requisite pleading is absent; and, on the facts, we are inclined to think that the transport of tea to Cochin and the sale there cannot be regarded as part of the agricultural operations to make the produce marketable.

12. There is no force either in the plea of discrimination (raised by the petitioner in 0. P. No. 3243 of 1973). The argument was that the Madras dealer who sells in Nilgiris or other parts of Madras State prior to 1st November, 1956, receives the benefit of Section 5(v) of the Act, whereas if the same or different dealer in Madras were to take his tea to Willingdon Island and auction the same in Cochin, he does not enjoy the benefits of Section 5(v) of the Act. Assuming, without examining, whether the position is really so, we do not think this can constitute discrimination. The difference in result is based essentially on the constitutional provision in Article 286 of the Constitution and its practical application to the transactions in question. In State of Madhya Pradesh v. Bhopal Sugar Industries Ltd. [1964] 6 S.C.R. 846, the court observed:

It would be impossible to lay down any definite time-limit within which the State had to make necessary adjustments so as to effectuate the equality Clause of the Constitution. That initially there was a valid geographical classification of regions in the same State justifying unequal laws when the State was formed must be accepted. But whether the continuance of unequal laws by itself sustained the plea of unlawful discrimination in view of changed circumstances could only be ascertained after a full and thorough enquiry into the continuance of the grounds on which the inequality could rationally be founded, and the change of circumstances, if any, which obliterated the compulsion of expediency and necessity existing at the time when the Reorganisation Act was enacted.

13. All the objections urged in these writ petitions fail and they are dismissed with no order as to costs.


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