1. The petitioners in this batch of revision cases are licensed tanners carrying on business in several places in the North Arcot District, Under Rule 16 (2) of the Turnover and Assessment Rules, these petitioners were assessed to sales-tax on the total volume of their purchases. The assessments in dispute relate to the year 1951-52. The assessing officer as well as the Commercial Tax Officer on appeal had included in the taxable turnover, the purchases effected from "unlicensed" dealers, that is, from those carrying on business outside the State. The Appellate Tribunal on appeal by these petitioners eliminated the last mentioned item in view of the decision of this Court in Hajee Abdul Shukur v. State of Madras, (A). The petitioners, having obtained all the benefit derivable by them by virtue of the decision of this Court rendered up to that date, sought to challenge before the Appellate Tribunal the validity of the entire assessments, mainly on the ground that the provision, under which the petitioners applied, for and obtained licences to deal in untanned hides and skins, was itself invalid. This attitude was adopted to obtain advantage from the decision of this Court in Noor Muhammad v. State of Madras, (B), which ruled that unlicensed dealers could not be assessed under Rule 16 of the Turnover and Assessment Rules, under which alone a single point for levying a tax on the sale of hides and skins had been fixed. This contention was negatived by the Tribunal, and in general the correctness of this contention was the only point which was urged before us in these several cases.
2. It would be necessary to sot out some of the provisions of the Madras General Sales Tax Act and the rules made thereunder in relation to the taxation of hides and skins and the decisions which have been rendered on the interpretation of these provisions in order to understand the arguments urged by learned counsel for the petitioners in support of his submission, that the sales tax levied upon licensed dealers is ultra vires and void.
3. Section 3 of the Madras General Sales Tax Act, which is the charging provision of the enactment, lays a tax on every dealer on his total turnover for the year, which means that it is a multi-point tax. The question as to whether the turnover of a dealer is to be computed on the totality of his purchases or sales is to be determined by the rules, the only saving being that in respect of the same transactions of sale the buyer or the seller but not both shall be taxed. An exception is made in regard to this multipoint levy by Section 5. The sales tax on hides and skins is governed by the provisions of this section, whose relevant words are:
"5. Subject to such restrictions, and conditions as may be prescribed, including conditions as to licence and licence fees......
(vi) the sale of hides and skins, whether tanned or untanned, shall be liable to tax under Section 3, Sub-section (1) only at such single pointed in the series of sales by, successive dealers as may be prescribed."
4. "Prescribed'', as usual means "prescribed by rules made under the Act and the rules which have been made are in two sets. The first is Madras General Sales Tax (Turnover and Assessment) Rules, dealing with the determination of the turnover prescribing the person whose turnover is liable to be taxed and the fixation of the points at which transactions are liable to taxation in respect of commodities for which single point taxation is provided for in the Act. The second set of rules is the Madras General Sales Tax Rules, which lay down the procedure for applications for licences under the Act, the authorities which grant them, the conditions subject to which they are granted and held that the fees prescribed thereunder, etc.
5. We shall now set out the relevant rules in regard to the taxation of hides and skins. Rule 4 of the Turnover and Assessment rules prescribes :
"4 (1): Save as provided in Sub-rule (2) the gross turnover of a dealer for the purpose of these rules shall be the amount for which goods are sold by the dealer.
2. In the case of the undermentioned goods the gross turnover of a dealer for the purposes of these rules shall be the amount for which the goods are bought by the dealer ......
(e) untanned hides and skins bought by a licensed tanner in the State."
Rules 15 and 16 are the special rules which apply to the assessment and levy of the tax payable by dealers in hides and skins. Rule 15 (1) enacts that the provisions of Rule 16 shall apply to licensed tanners and licensed dealers in hides and skins in respect of their dealings in hides and skins. Rule 16 (1), therefore, which is thus pointed out as the rule governing the taxation of dealings in bides and skins, provides :
"16 (1). In the case of bides and skins the tax payable under Section 3 (1) shall be levied in accordance with the provisions of this rule.
2. No tax shall be levied on the sale of untanned hides or skins by a licensed dealer in hides or skins except at the stage at which such hides and skins are sold to a tanner in the State or arc sold for export outside the State
(i) in the case of all untanned hides and skins sold to a tanner in the State, the tax shall be levied from the tanner on the amount for which the hides or skins are bought by him.
(ii) in the case of all untanned hides or skins which are not sold to a tanner in the State but are exported outside the State, the tax shall be levied from the dealer who was the last dealer not exempt from taxation under Section 3 (3) who buys them in the State on the amount for which they were bought by him.
3. Sales by licensed dealers of hides and skins which have been tanned within the State shall be exempt from taxation provided that the hides or skins have been tanned in a tannery which has paid the tax leviable under the Act. If such hides or skins have been tanned in a tannery which is exempt from taxation under Section 3 (3) the sale of such hides or skins shall be liable to taxation as under the next sub-rule below dealing with hides or skins tanned outside, the State.
4. Sales by licensed dealers in hides or skins which have been tanned outside the State shall be exempt from taxation except at the stage of sale by the dealer who is the first dealer not exempt from taxation under Section 3 (3) who sells them within the State. The tax shall be levied from such dealer on the amount for which he sells such hides or skins."
As we have said earlier, the General Sales Tax Rules prescribe the procedure for obtaining licences by dealers for the purpose of carrying on their business. The rule material to the present context is Rule 5 and its relevant portion runs :
"5 (1). Every person who
(e) deales in hides and/or skins whether as a tanner or otherwise... shall, if he desires to avail himself of the .... concession of taxation only at a single point ..... submit an application in form No. 1 for a licence in respect of each of his places of business to the authority specified in Sub-rule (2)......
Now the decisions rendered on the validity of interpretation of these rules stand thus. The Constitutional validity of the entire set of provisions including the rules for the taxation of hides and skins was challenged by petitions for the issue of writs of certiorari filed in this Court in 1952. This challenge was, however, rejected by a Bench of this Court in Syed Muhammad v. State of Madras, (C), in a judgment which was rendered on 29th August 1952.
The petitioners in those petitions were licensed tanners, and the learned Judges upheld in general the validity of the provisions under which the tax was levied and dismissed the petitions. It was, however, held that Rule 16 (5) which provided for a multipoint taxation of sales by unlicensed dealers was repugnant to Section 5 (vi) of the Act, which provided for single point taxation. This decision was taken up in appeal to the Supreme Court, where it was affirmed.
6. The next decision in order of date was that of a Full Bench in (A), the judgment was pronounced on 14th March 1955. The point involved related to the computation of the turnover of a licensed hides and skins dealer who was liable to tax on his purchase turnover under Rule 16 (2) (i). The conclusions reached by the Full Bench would be seen from the following extract at p. 364 (of STC): (at p. 690 of AIR):
"The conclusion we have reached as a result of the above discussion is that (1) the charging provision, Section 3 is subject, in the case of transactions in hides and skins, to the terms of Section 5 (vi) under which a single point of taxation in a series of sales has to be fixed by the rules; (2) Rule 4 (2) is not the fixation of a single point within Section 5 (vi) but is merely designed to determine whether it is the buyer or the seller that shall be liable to be taxed; (3) the single point is fixed and the liability to tax is established only under Rule 16; and (4) that under Rule 16 (2)(i) it is only the sale of untanned hides and skins by a licensed dealer to a licensed tanner who tans the same that give rise to the tax liability and that purchases of untanned hides and skins by tanners from persons other than licensed dealers, are not within the taxing provisions."
7. Upto this stage the dealers whose liability to taxation came up before the Court were licensed dealers. The liability of an unlicensed dealer to tax-under Rule 16 (2) -- Rule 16 (5) having been pronounced to be invalid -- came up for decision in (B). The Bench held that as Rule 16 (5) was invalid the other Sub-rules of Rule 16, which were concerned wholly with the transactions of licensed dealers, did not fix any single point for the taxation of unlicensed dealers, with the result that unlicensed dealers were not liable to any tax in respect of their dealings.
8. It is in the context of these decisions that learned counsel for the petitioners urged that the logical consequence of the reasoning contained in these rulings would be to render the provisions as to licensing invalid, as such licensing did not confer any advantage in the matter of taxation on the licensees, and that, in any event, there was an illegal or improper discrimination in favour of unlicensed dealers, who were held not liable to be taxed, and that the taxation of licensed dealers was therefore void tinder Article 14 of the Constitution.
9. The first contention urged on behalf of the assessee-petitioners was that Rule 16 of the Turnover and Assessment Rules, which according to the decisions of this Court was the only provision designed to fix the single point for taxation, was beyond the power to make rules conferred by Section 5 (vi) of the Act. The argument was that Rule 10 (2) (i) fixed the single point for the levy of tax at the purchase by a licensed dealer, and that this was inconsistent with Section 5 (vi) which did not contemplate licensing as a condition which could be imposed in order to entitle a dealer to the benefit of a single-point taxation.
As part of this submission, learned counsel urged that the logical consequence of the three previous decisions of this Court, we have referred to particularly the last one in (B), was that Rule 5 of the General Sales Tax Rules, which made provision for the licensing of dealers in hides and skins was ultra vires of the rule making power, and from this premises the conclusion urged upon us was that Rule 16 which levied a tax on the transactions of a licensed dealer was also invalid and incompetent.
10. We are clearly of the opinion that these contentions are not well-founded. In none of the earlier decisions, dealing with the construction of Rule 16, was it held that Rule 5 of the General Sales Tax Rules was invalid in so far as it enabled licensees to obtain the benefit of single point taxation. The ruling in (B), really turned on the interpretation of Section 6-A, in the light of the optional licensing provided for by General Sales Tax Rules (Rule 5).
If a dealer opted not to apply for or obtain a licence, the legal consequence, on the language employed in Rule 5, was to be found in Rule 16. (5) of the Turnover and Assessment Rules, viz., multi-point taxation. On this very ground, however, Rule 16 (5) was held to be ultra vires the rule-making power. We therefore held in (B), that Rule 5 which, in its then form, could not, in the context of the governing sections of the enactment, deprive an unlicensed dealer of the benefit of a single point tax, could not either alone or in conjunction with Rule 16 (2) be read as fixing any single point for their taxation.
From this however it does not follow that the licensing provision itself is illegal or ultra vires. On the other hand, every one of these decisions proceeded on the basis, that a licensed dealer was entitled to be taxed at a single point and these cannot therefore be treated as authorities to support the submission that under Rule 5 read with the Turnover Rules a licensed dealer was not subjected to tax even at a single point.
11. It would be seen from the foregoing discussion, that the resulting situation of an unlicensed dealer not being subject to tax, while a single point tax is levied on licensed dealers, is due to accident and not design; and the question we have next to consider is whether, in this state of circumstances, the levy of a tax on the purchase turnover of licensed dealers is obnoxious to Article 14 and so void and inoperative. The argument formulated under this head on behalf of the assessees ran thus.
12. The decisions of this Court have established three propositions in regard to the taxation of dealers in untahned hides and skins.
1. The provision that fixes the single point at which tax is levied on such dealers is Rule 16 of the Turnover and Assessment Rules and under this rule it is fixed at the point of purchase; (FB) (A).
2. On a proper construction of this rule the taxable turnover of such dealers does not include purchases from unlicensed dealers, (ibid).
3. On the frame and language of the rule, unlicensed dealers are not within the scope of the taxation (B). On the
language of the rules, therefore, and in view of this interpretation placed thereon, the only class which is liable to sales tax, in regard to transactions in hides and skins, is that of licensed dealers, on whom a tax is levied in respect of their purchases. The consequence is that the taking out of a licence, which is optional, and obtained on payment of the prescribed fee, operates as a disadvantage and exposes the licensee to tax liability, from which those who fail to take out the licence are immune.
This result may be expressed by saying that out of the class of dealers in untanned hides and skins who all possess common characteristics, the law introduces an artificial and unreal distinction between those who take out licenses and those who do not, and visits on the former the penalty of a tax liability to which the other class is not subjected.
There is in reality no difference in substance between the two classes of dealers, those who have to pay the tax and those who have not to, except the taking of a licence, and the law instead of conferring a benefit on those who agree to subject themselves to regulation under the licence and pay for it, discriminates against diem by taking their purchases and favours the unlicensed by not taxing them similarly. There is no intelligible criterion for this classification between the licence-holders who are taxed and the others on whom no tax is levied. The provision therefore is obnoxious to Article 14 as denying equal protection of the laws to the licensed dealers in fact unfairly discriminating against them. Such were the contentions.
13. Though at first sight the argument as summarised above appears to have considerable force, we have after careful consideration decided to reject it and for two reasons (1) No objection could be taken to the rules as framed drawing a distinction between licensed and unlicensed dealers as violative of Article 14. In (C),
Venkatarama Aiyar J. observed:
"Lastly, it was argued that the rules make a distinction between licensed dealers and unlicensed dealers and that is an arbitrary distinction repugnant to Art, 14. A classification of merchants into those who take out licenses and those who do not is one resting on a rational basis and must be upheld."
This objection was not repeated before the Supreme Court in Syed Mohamed & Co. v. State of Andhra (D). The view
expressed in (C),' was endorsed by the Full Bench in the State of Madras v. Chambers Ltd., (E). The learned Chief Justice said:
"As was observed in (C), a classification of
merchants into those who take out licences and those who do not is one resting on a rational basis and must be upheld. The scheme of assessment under the Madras General Sales Tax Act certainly makes a difference between a licensed dealer and an unlicensed dealer."
It is therefore not the classification between the licensed and the unlicensed dealers that is at fault but that the frame and language of the valid rules as drafted did hot impose a tax on the purchases of unlicensed dealers. The Legislature intending in fact to confer the benefits of Single point taxation on licensed dealers, while denying them to those who did not take out a licence, actually contrived to confine the taxation to licensed dealers, leaving out altogether those unlicensed from the scope of the taxing measure. The result was certainly therefore unintended by the legislature and the rule-making authorities and was due to the inapt machinery and the inappropriate language employed in framing the rules.
14. The question that next arises is whether this consequential effect could be complained of as a discrimination or a denial of the equal protection of the laws guaranteed by Article 14. There is no direct authority on the point and the matter has therefore to be decided on general principles, A case in which a problem of the type now before us could have arisen was however dealt with and disposed of on an entirely different basis.
Pollock v. Farmers' Loan & Trust Co., (1895) 39 Law Ed 1108 (F), was concerned with the constitutional validity of the Income-tax Act of 1894, enacted by Congress, the contention being that the tax was a direct tax which was unconstitutional, because it was not apportioned among the States according to their representation as required by Article 1, Section 2 of the United States Constitution. The Supreme Court by a majority held that taxes on income derived from real estate and from invested personal property were direct taxes, whose imposition without apportionment was unconstitutional.
The Act of Congress included in the total income on which the tax was levied, other items which partook of the nature of a tax on privilege or excise duties, which Congress could impose inter apportionment. The question that immediately arose was whether the taxing enactment could be sustained at least as regards this valid portion. The Court however ruled against it on the ground of inseparability, Fuller C. J. saying,
"It is elementary that the same statute may be in part constitutional and in part unconstitutional, and if the parts are wholly independent of each other that which is constitutional may stand while that which is unconstitutional will be rejected.
And in the case before us, there is no question as to the validity of this Act, except sections twenty- seven to thirty-seven inclusive, which relate to the subject which has been under discussion; and as to them we think the rule laid down by Chief Justice Shaw in Warren v. Charleston, 2 Cray 84 (G), is applicable, that if the different parts 'are so mutually connected with and dependent on each other, as couditions, considerations or compensations for each other, as to warrant a belief that the legislature in tended them as a whole, and that, if all could not be carried into effect, the legislature would not pass the residue independently, and some parts are un constitutional, all the provisions which are thus, dependent, conditional or connected must fall with them.'
Or, as the point is put by Mr. Justice Matthews in Poindexter v. Greenhow, (1885) 114 US 270 at p. 300 (H), 'It is undoubtedly true that there may be Cases where one part of a statute may be enforced as constitutional, and another be declared inoperative and void, because unconstitutional; but these are cases where the parts are so distinctly separable that each can stand alone, and where the Court is able to see, and to declare, that the intention of the Legislature was that the part pronounced valid should be enforceable, even though the other part should fail. To hold otherwise would be to substitute, for the law intended by the legislature, one they may never have been willing by itself to enact."
The learned Chief Justice then proceeded to ascertain the total volume of the property the income from which would have been brought within the scope of the enactment if the same were valid and after comparing this with the insignificance of the area over which the law could validly operate concluded :
"If that be stricken out, and also the income from all invested personal properly, bonds, stocks, investments of all kinds, it is obvious that by far the largest part of the anticipated revenue would be eliminated, and this would leave the burden of the tax to be borne by profession, trades, employments, Or vocations, and in that way what was intended as a tax on capital would remain in substance a tax on occupations and labour.
We cannot believe that such was the intention of Congress. We do not mean to say that an Act laying by apportionment a direct tax on all real estate and personal property, or the income thereof, might not also lay excise taxes on business, privi leges, employments, and vocations. But this is not such an Act; and the scheme must be considered as a whole.
Being invalid as to the greater part, and falling, as the tax would, if any part were held valid, in direction which could not have been contemplated except in connection with the taxation considered as an entirety, we are constrained to conclude that sections twenty seven to thirty seven, inclusive, of the Act, which became a law without the signature of the President on August 28, 1894, are wholly in-operative and void."
This approach is not possible in the present case and indeed was not even suggested by learned counsel for the petitioner.
15. Dealing then with the matter on principle, it appears to us that the essence of the freedom guaranteed by Article 14 and the evil which the Article seeks to guard against is the avoidance of designed and intentional hostile treatment or discrimination on the part of the law-making authorities or of those entrusted with administering them.
Notwithstanding patient search, we have been unable to discover any. decision on the American Courts where a law has been declared unconstitutional as violative of the Fourteenth Amendment, merely because of its partial operation where this was unintended or was due to fortuitous circumstances. For instance, it is no constitutional objection to the validity of a penal statute that every offender against it, known or unknown, is not prosecuted.
Similarly, if a taxing enactment is on the face of it not open to the objection of discrimination, but evasions occur which go unpunished, the enactment itself cannot be impugned as violating the equal protection clause. If again a taxing statute, owing to defective drafting or unforeseen Contingencies provides loopholes through which some persons escape the tax, the entire law cannot be avoided on the ground of its unequal operation.
For the wit of man has yet to devise a taxing measure which does not permit some, who are within its apparent orbit, to avoid its fiscal burden by putting through transactions which take them out of the taxable categories. Imperfections of language and inapt draftsmanship by reason of which those, whom the Legislature or the rule-making authority desires to rope in, find themselves free, cannot therefore constitute any basis on which a complaint of discrimination could be rested. This is perhaps the same principle as that which is referred to by Willoughby in his Constitutional Law on the United States (2nd Edn.) at page 825 :
".....no one is guaranteed that in fact, through the fortuitious operation of a law which in itself is-not discriminative, a special burden may not be imposed, or the enjoyment of a privilege taken away."
Viewed in the light of the above discussion, in our opinion, the taxation of licensed dealers is not obnoxious to the freedom against discrimination-guaranteed by Article 14. We need only add that in view of the decisions of this Court the rules have now been amended making licensing compulsory,
16. The second ground on which we have reached this conclusion is derived from the principle thus stated in Rottschaeffer on Constitutional Law at page 552:
"....an objection that legislation violated the clause because not including certain other persons would not be sustained in the absence of a showing that there actually were such others engaged in the business to which the legislation applied."
In Pullman v. Knott, (1914) 235 US 23: 59 Law Ed 105 (1), which is cited as authority for this proposition, a tax laid on the gross receipts of sleeping and parlor car companies was challenged as discriminatory for the reason, that railway companies were not subjected to the tax, but there was however no evidence that railroads within the State operated any sleeping or parlor cars. On this ground the constitutional objection was repelled. Holmes J. who spoke for an unanimous Court said:
"It is suggested that there is no arbitrary classification because the tax is confined to sleeping and parlor car companies, and does not fall upon railroads operating their own sleeping and parlor cars. If otherwise this were a valid objection, as to which we need express no opinion, it is enough to say that a tax is not to be upset upon hypothetical and unreal possibilities, if it would be good upon the facts as they are..... It does not appear that any railroad in Florida does operate its own sleeping or parlor cars, and the Attorney General of the State denies that such a case exists."
The facts of the present case though not identical are only slightly different. The learned Advocate Central has placed before us an analysis of the total number of licensed tanners and dealers" and the number of them who dealt without a licence in the State during the years 1947-48. to 1954-55 (the year of assessment of petitioners in the several Tax Revision cases being 1951-1952, and all of them being dealers in the North ArCot District) which is set down below:
T = Tanner D = Dealer
N. Arcot (Unlicensed)
T. D. Total T. D. Total T. D. Total
1947-48 711 1742 2453 13 6 19 1 1 2
1948-49 629 1643 2272 12 17 29 2 2 4
1949-50 677 1714 2391 5 17 22 1 1 2
1950-51 671 1783 2454 16 12 28 6 2 8
1951-52 696 1932 2628 15 23 38 6 3 9
1952-53 454 1301 1755 37 44 81 22 4 26
1953-54 430 1185 1615 50 39 98 16 1 17
1954-55 355 1108 1463 65 59 124 21 2 23
It will be seen from, these figures that the number of unlicensed dealers during the years 1947-48 to 1951-52 formed a wholly insignificant proportion to the total number of dealers, and in our opinion, on these facts the complaint of discrimination is without justification. In the words of Sutherland J. in Radice v. New York, (1924) 68 Law Ed. 690 at sp. 695 (J),
"......the mere production of inequality is not enough ...... The inequality produced in order to encounter the challenge of the Constitution, must be 'actually and palpably unreasonable and arbitrary'."
The last words in this passage were a quotation from the dictum of the same learned Judges in Arkansas Natural Gas Co. v. Arkansas Railroad Commission, (1923) 261 US 379: 67 Law' Ed 705 (K).
"The State Legislature is vested with a wide discretion in the matter, and interference by this Court may not be had merely because its exercise has produced inequality.....every selection of subjects or persons for governmental regulation does that'-- but only where it has produced an inequality which is actually and palpably unreasonable and arbitrary."
Adapting these observations to the case before us we would hold that the inequality produced is not palpable, the favoured class of non-licensees being so few as to be considered negligible if not non existent. Further as the decision in (C), which held Rule 16 (5) to be ultra vires of the rule-making power was render ed only on 29th August 1952, it is possible that most, if not all, the unlicensed dealers or at least such of those whose turnover was above the taxable limit during 1951-52, which these petitions are concerned with, was dealt with under Rule 16 (6) and taxed tin their sales.
17. The challenge to the constitutional validity of the tax imposition is therefore rejected. No other point having been raised in these revisions for our consideration, the Tax Revision Cases fail and are dismissed. No costs.