K. Veeraswami, C.J.
1. In this batch of petitions under Article 226 of the Constitution, the validity of the Tamil Nadu Additional Sales Tax Act (XIV of 1970) is assailed on grounds of legislative incompetence and violation of Articles 19(1)(g) and 14 of the Constitution. In W.P. No. 3551 of 1970, taken as illustrative, the petitioner is a private limited liability company, carrying on its business at Madurai dealing mainly as a body builder constructing various types of bodies on chassis supplied by customers and also as manufacturer of automobile rubber goods for sale. The Joint Commercial Tax Officer, III, Madurai town, who is the assessing authority, has served on the petitioner a notice dated 21st September, 1970, demanding Rs. 94,596 as additional advance tax for the year 1970-71 and calling upon it to pay the amount in 12 equated monthly instalments. The petitioner claims, on ground of invalidity of the Act, that the demand is liable to be quashed on certiorari. The preamble to the Act says that since it was considered necessary to levy an additional tax on the sale or purchase of goods it has been enacted to provide for it. In the counter affidavit filed on behalf of the State, it is said that the Act has been made in order to increase the resources of the State. The Act was published in the Tamil Nadu Government Gazette, Extraordinary, dated 28th May, 1970, but by Section 1(2), it shall be deemed to have come into force on 1st April, 1970. Apart from Section 1 relating to the short title and commencement, the Act has three other Sections. Section 2(1) provides, that the tax payable under the Tamil Nadu General Sales Tax Act, 1969 shall, in the case of a dealer whose total turnover for a year exceeds 10 lakhs of rupees be increased by an additional tax at the rate of 5 per cent of the tax payable by that dealer for that year. The provisions of the General Sales Tax Act, 1959, shall apply in relation to the additional tax as they apply in relation to the tax payable under the said Act. The Sub-section has a proviso which, in the case of declared goods of such a dealer, restricts the additional tax to such an extent that the tax and the additional tax together shall not exceed 3 per cent of the sale or purchase price of such goods. Sub-section (2) of Section 2 says that notwithstanding anything contained in the said Act, no dealer referred to in Sub-section (1) shall be entitled to collect the additional tax payable under the said Sub-section. Contravention of this Sub-section is made by Sub-section (3), an offence punishable with fine which may extend to Rs. 1,000. Under Section 3(1), the tax payable by any importer or wholesale dealer under the Tamil Nadu Sales of Motor Spirit Taxation Act, 1939, shall be increased by an additional tax at the rate of five per cent of the tax payable under the 1939 Act and the provisions of the Act shall apply in relation to the additional tax as they apply in relation to the tax payable under the earlier Act. Sub-sections (2) and (3) of Section 3 are to the same effect as Sub-sections (2) and (3) of Section 2. Section 4 relates to the rule making power. In exercise of this power, rules have been framed called the Tamil Nadu Additional Sales Tax Rules, 1976. Rule 4 provides for provisional assessment of additional tax on the basis of the previous year's total turnover exceeding Rs. 16 lakhs, and for collection of the provisional tax in such manner and in such, time as may be specified in the notice in Form P. Provision is made by Rule 5 for finalising additional sales tax payable by a dealer at the time when his assessment is finalised under the 1959 Act, and collection of the same in the manner and in such time as may be specified in the notice in Form Q.
2. Mr. V.K. Thiruvenkatachari for some of the petitioners who addressed to us the leading argument, which the others adopted, did not dispute that the additional tax is in its character sales tax. Bat he contends that it is not germane to tax sales on the same commodity at different rates based on any criteria as to seller, and that profit and Joss have nothing to do with sales tax. He says that such a graded tax is not within Entry 54 of the State List, and that in any case, sales tax being on each sale, the rate should be the same on each sale regardless of individuals and that imposition of additional burden on someonly of the sellers is both unreasonable and involves arbitrary classification on criteria irrelevant to levy of sales-tax. According to him, the additional tax, therefore, offends Article 19(1)(g) as well as Article 14 of the Constitution. His second submission is, that the proviso to Section 2(1) is inconsistent with Section 15(a) of the Central Sales Tax Act which, as he says, contemplates only one rate and at one stage, and not different rates at different stages or sales of different commodities. Thirdly, he argues that the inhibition of the collection of the additional tax is not a matter 'ancillary or incidental to the power to levy tax on sale or purchase of goods, arid in enacting Sub-section (2) of Section 2, the Legislature has not minded its business, and exceeded its powers. Collection of additional tax, he would say, can only refer to a bargain for including tax in the price, and such a provision goes against price control regulations, and particularly the provisions of Section 64-A of the Sale of Goods Act. Lastly, he maintains that Sub-section (3) of Section 2 is, therefore, not authorised by Entry 64 of the State List. These submissions: are mutatis mutandis extended as well to the Validity of the provisions of Section 3 of the impugned Act.
3. On the first contention, we agree with the broad contention that sales-tax, is a tax levied at specified rate on each sale of goods or commodities. Province of Madras v. Boddu Paidanna (1942) F.C.R. 90 : (1942) 1 S.T.C. 104 : (1942) F.L.J. 61 : (1942) 2 M.L.J. 327 : A.I.R. 1942 F.C. 33 recognised that. But if identity of the same rate of tax, on or in every particular sale is the test of the quality of sales-tax and its validity, we are of opinion that Sub-section (1) of Section 2 satisfies it. Though the turnover exceeding the limil of Rs. 10 lakhs is what attracts the additional tax, the rate is at the specifiec percentage of the total tax payable by the dealer in a particular year, so that the flat increase in percentage is easily worked out and is identifiable in respect of each sale or purchase. Subject to this, a graded rate of sales-tax depending on the volume of turnover is, in our opinion, within the State's taxing power. The levy by Section 2(1) of additional tax is not on and is not confined to any particular higher slab of turnover. Once the higher slab attracts the additional tax, the rate determined at a given percentage of the entire tax payable is charged in the ultimate analysis uniformly to every transaction of sale or purchase. So long as the additional tax is basically and in its true character a sales-tax which we think it is, Section 2(1) is within the taxing power. We are also not persuaded that the additional tax is an unreasonable restriction, and involves an arbitrary classification. In exercise of the taxing power, the Legislature has necessarily a wide discretion to make a choice. What rates of tax should be levied, and who should bear them are matters of policy within the competence of the Legislature. Classification of dealers on the basis of the quantum of their respective turnover, for purposes of graded? charge, so long as it is based on sensible differential criteria relevant to the legislative object to be achieved, is constitutional. Any tax is, of course, a restriction, and in that sense it may affect the right to carry on business. But if the restriction is not shown to be unreasonable, it cannot be complained against as violative of the fundamental right. In our opinion, the additional tax even including in the context of Sub-section (2) of Section 2, cannot be regarded as an unreasonable restriction on the petitioner's right to carry on business. The preamble to the Act and the counter affidavit are to the effect that the additional tax has been resorted to in order to augment the revenues of the State, and that is well within the taxing power of the Legislature. So too, the classification in Section 2(1) for attracting the additional tax cannot be said to be irrelevant to sales-tax, or arbitrary. The classification of dealers depending on the quantum of turnover for purposes of exemption from tax has 'been upheld in several decided cases. We do not see why a different approach is called for, or is justified, to the validity of similar classification of dealers for applying additional tax. Rottschaefer in his Hand Book of American Constitutional Law, 1939 Edition, draws attention at page 671 to Stewart Dry Goods Company v. Ldwis 78 L.Ed. 1054 as having held that the progressively graduated tax construed as sales-tax Was violative of the equal protection clause. Parts of the majority opinion have been read out to us. In that case it is noteworthy that the rate charged increased with the specified progressive slabs of turnover and that the increased rates were applicable only in respect of sales in each successive bracket. The majority opinion held the tax to be violative of the equal protection clause. Cardozo, J. joined by Brandies and Stone, JJ. dissented and held that there could be valid classification for purposes of taxation according to the nature of the business, and that there might be valid classification according to size and the power and opportunity of which size Was an exponent. The learned Judges observed:
The larger dealer, it is said, occupies, both absolutely and relatively, a position of economic superiority by reason of the volume of his business. In that view, to make his tax heavier, both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus to arrive in the end at a more genuine equality.
We are impressed by this reasoning which, in our view, correct as it is, should inform itself in determining the alleged arbitrariness of the classification in Section 2(1). The capacity of a dealer in particular circumstances to pay tax is not irrelevant to fixation of the rate of tax and one of such circumstances can well be the quantum of turnover. The argument that, where a dealer with a turnover beyond a certian limit is obliged to pay a higher rate of tax, others bear less tax, and it is discriminatory, misses the point that the former kind of dealers arc in a position of economic superiority by reason of the volume of the business and form a class by themselves. They cannot be equated with comparatively smaller dealers. As Cardozo, J. pointed out, an attempt to proportion the payment to capacity to pay and thus bring about a real and factual equality cannot, in our opinion, be ruled out as irrelevant to levy of tax on sale or purchase of goods. It cannot be denied that taxation can legitimately be used as a mean of ushering in social and economic equality. The Kerala High Court in Kilikar v. Sales-tax Officer (1968) 21 S.T.C. 252 upheld the validity of Section 3 of the Kerala Surcharge on Taxes Act, 1957, which is materially similar to Section 2 of the impugned Act. The proviso to Sub-section (1) of Section 3, as well as Sub-sections (2) and (3) of the Kerala Act are on the same pattern as those of Section 2 of the Act in question. The Kerala High Court held that Section 3 is not violative of Articles i4 and 19 (1)(f) and (e). The Andhra Pradesh High Court in A.S. Ramachandra Rao and Co. v. State of Andhra Pradesh (1969) 24 S.T.C. 133 upheld the validity of a like Section (Section 5-A) of the Andhra Pradesh, General Sales Tax Act, J957- The Court rejected the contention that the Section was beyond the legislative competence, or that it violated Article 14. Stewart Dry Goods Co. v. Lewis 79 L.Ed. 1054 : 294 U.S. 550 was referred to in that case. But the Court would appear to have preferred the opinion of Cardozo, J. In our opinion, therefore, Section 2(1) of the impugned Act is competent, and does not offend either Article 19(1)(g) or Article 14.
4. We think also that the validity of the proviso to Section 2(1) cannot be successfully challenged. The object of the proviso is to make the additional tax to conform to the provisions of Section 15 of the Central Sales Tax Act. What Clause (a) of the Section enjoins is, that in respect of declared goods, the tax on intra State sale or purchase shall not be subject to tax exceeding three percent of the price, and that such tax should not be levied at more than one stage. The tax under the General Sales Tax Act, and the additional tax under the impugned Act have to be read together and are not levied at more than one stage.
5. As to the validity of Sub-section (2) of Section 2, it is a matter for careful consideration. Is the inhibition envisaged by this provision ancillary or incidental to levy of sale-tax under Entry 54 of the State List? The entry is 'Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List I'. It has been repeatedly pointed out by Courts that each of the legislative entries is of absolute character within its limits including those if any, imposed by the other parts of the Constitution. So long as the Legislature is within the limits of its-power under the Entry, neither its. exercise in a particular manner, nor the policy which has dictated it can. successfully be questioned. Within the field of power earmarked for it under the Constitution, the State Legislature is= supreme, except to the extent of limitations envisaged under the Constitution. Having regard to the nature of the power,, therefore, each entry should be read and understood in its widest sense and most comprehensive sense. In legislating or any of the matters enumerated in the List, the power to do so naturally and necessarily includes the power to make. provision to cover ancillary or incidental matters. We are told by the petitioners; that the Legislature in enacting Sub-section (2) of Section 2 has not minded its own business of charging additional tax, but has exceeded its power under Entry 54, as it cannot be said to be ancillary or, incidental to levy of sale-tax. But sales-tax need not necessarily be an indirect tax, though it may be normally so, in the sense that the dealer', who pays it may pass it on by including it in the price, or collect it separately. In the scheme of division of the taxing power in the federal set up under our Constitution, the classification as direct and indirect taxes is not taken as the basis. As mentioned by the Taxation Enquiry Commission, the assumption is made that the incidence of direct taxes; vests with those who initially pay the tax, while of indirect taxes is borne by consumers of taxed commodities. But the effective incidence as connecting the real or final distribution of tax burden after its shifting in consequence of changing demand and supply conditions of the tax commodity or service, is obviously much more complex and difficult to determine. The Supreme Court in the Tata Iron Steel Co. Ltd. v. State of Bihar (1968) 21 S.T.C. 252 negativing a contention that as sales-tax is an indirect tax which the seller would pass on to his purchaser, it could not be imposed retrospectively after the sale transaction had been concluded by the passing of the title from the seller to the buyer, for it cannot, at that stage, be passed on to the purchaser, held that though from the point of view of the economists, and as an economic theory, sales-tax might be an indirect tax on the consumers, legally it need not be so. It follows that opportunity to pass on is not of the essence of the character of the tax as sales-tax. Passing on to the validity of the retrospective levy of sales-tax as in Tata Iron & Steel Co. Ltd. v. State of Bihar 1958 S.C.R. 1955 : 1958 S.C.J. 818 : (1958) 9 S.T.C. 267 : A.I.R. 1958 S.C. 452 the Supreme Court in J.K. Jute Mills Co. V. State of Uttar Pradesh : 2SCR1 held:
It is no doubt true that a sales-tax is, according to the accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales-tax by the seller from the purchaser are a usual feature of sales-tax legislation. But it is not an essential characteristic of a sales-tax that the seller must have the right to pass it on to the consumer, nor is the power of the Legislature, to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. Whether a law should be enacted, imposing a sales-tax, or validating the imposition of sales-tax, when the seller is not in a position to pass it on to the consumer, is a matter of policy and does not affect the competence of the Legislature.
6. It seems to us, therefore, that not only the inhibition in Sub-section (2) of Section 2 of the impugned Act makes no difference to the essential character of the additional tax imposed by Section 2(1) as sales-tax, but the question on whom the incidence of tax should rest, and whether the dealer on whom the tax is levied should necessarily be in a position to pass on the tax burden, are, as a matter of policy, incidental or ancillary to the taxing power under Entry 54 of the State List. In Konduri Buchirajalinga v. State of Hyderabad : AIR1958SC756 . the Supreme Court, while accepting the view that the appellant before it had no right to collect any tax from the agriculturists, said-that a tax could be a sales-tax though the primary liability for it was put upon a person without giving him any power to recoup the amount of the tax payable: from any other party. Accordingly, the validity of provisions like Sub-section (2): of Section 2 of the impugned Act, has been upheld by the Kerala High Court in Ernakulam Radio Co. v. State of Kerala (1966) 18 S.T.C. 445 and Kilikar v. Sales-tax Officer (1968) 21 S.T.C. 252 and the Andhra Pradesh High Court in A.S. Ramachandra Rao & Co. v. State of Andhra Pradesh (1969) 24 S.T.C. 133 When the Legislature decides to tax the seller, the liability is Squarely on him as was pointed out in Asokha Marketing Ltd. v. Stale of Bihar : 3SCR455 and not on the purchaser, and that being so, if the Legislature enacts that he should bear its burden and not pass it on, in our opinion, it is incidental or ancillary to the power of the Legislature under the tax Entry to determine the point of incidence, and where its burden should lie.
7. It is then contended that the prohibition in Section 2(2) violates Articles. 19(1)(g) and 14, and in support of this contention, reliance is placed on Mathurai Pillai v. State of Madras I.L.R. : AIR1954Mad569 Motor Vehicles (Taxation of Passengers and Goods) Act, 1952, Section 3 levied a tax on passengers and goods carried by stage carriages and public carrier vehicles, at the rate of nine pies in the rupee on. the fares and freights payable to the operators of such stage carriages, and at the rate of six pies in the rupee on the freights payable to the operators of such-public carrier vehicles. Then came a proviso which provided that the fare charged by an operator inclusive of the tax leviable under the Section should not exceed the maximum fare prescribed by the Government under the Motor Vehicles Act, 1939 and in force at the commencement of the Act. The Court held that while the operators would be bound to pay the tax, they would not be entitled to pass on the tax to the Passengers, or consignor because the proviso expressly laid down that the fare inclusive of the tax leviable under Section 3, should not exceed the maximum fare prescribed by the Government, and in force at the commencement of the Act. The proviso, in its opinion, therefore did injuriously affect the exercise of the petitioner's right to carry on business because it diminished the income without any justification. But the justification for Section 2(3) of the impugned Act, is that the additional levy under Section 2(1) is on dealers having & turnover of more than Rs. 10 lakhs, whose capacity to pay and bear the tax would be larger than those having lesser turnover. That justification, in our opinion, is reasonable. We have already held that the classification under Section, 2(1) is valid, and Sub-section (2) of section 2. b related to. and justified by it, The attack on Section 2(2) on the ground that it violates Article 19(1)(g), and Article 14 cannot, therefore, be accepted.
8. The further contention that Section 2(2) offends the price control regulations or statutory provisions as well as Section 64-A of the Sale of Goods Act, is not in our view, valid either. It is true that whoever may be liable, the tax or duty is usually passed on by the seller to the I buyer as part of the price, and that as mentioned in 34 Halsbury's Laws of England, Simonds Edition, para. 62: 'Where, however, a new or increased customs of excise duty, or purchase tax, is imposed after the making of the contract but before delivery of the goods, the duty or increase of duty, if paid by the seller, may unless otherwise agreed, be added to the price, and, conversely where a duty is repealed or reduced, if the seller has had the benefit of the alteration the duty or reduction may be deducted from the price'. That broadly also is the principle of Section 64-A of the Indian Sale of Goods Act. But that is a matter which regulates the rights and liabilities as between the seller and the buyer which, in our opinion, doe? not preclude the State Legislature from enacting Section 2(2) Well within its power of deciding where the tax burden should lie. It should follow then that the rights and liabilities a between the seller and the buyer will have to be adjusted subject to Section 2(2). That would, in our opinion, also suffice to negative the contention that Section 2(2) is contrary to the price control regulations, or statutory provisions.
9. Since we uphold the validity of Section 2 (2) and as Sub-section (3) of Section 2 is intended to give effect to Sub-section (2) of that Section, it is competent for the Legislature to enact that; provision with reference to Entry 64 of the State List. Our observations in respect of Section 2 apply to Section 3 as will.
10. One or two of the petitioners contend that the additional tax under Section 2(1) amounts to a tax on tax. We have already held that the tax in its true character, is sales-tax. Another contention is that Rule 4 of the Tamil Nadu Additional Sales Tax Rules, 1970, which provides for levy and collection of advance tax is ultra vires. But the contention overlooks the. concluding part of Sub-section (1) of Section 2, which, attracts to the impugned Act the provisions of Tamil Nadu General Sales-Tax Act, 1959, which includes the power to levy and collect such advance tax.
11. The petitions are dismissed with costs in W.P. No. 3551 of 1970. Counsel's fee Rs. 250. In the other petitions there will be no order as to costs.