PETITIONER: HANSRAJ BAGRECHA Vs. RESPONDENT: STATE OF BIHAR & ORS. DATE OF JUDGMENT: 18/09/1970 BENCH: [J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.] ACT: Constitution of India, Arts. 301 & 304-The Bihar Sales Tax Act, 1959 as amended by Bihar Finance Act, 1966, ss. 3A, 5A, and 42-The Bihar Sales Tax Rules, 1959, R.31B-Levy of purchase tax on goods whether per se restrictive of freedom of tarade-Presidential assent whether required for levy of tax- Sections 3A & 5A of Bihar Act whether invalid on ground of contravention of s. 15 of Central Sales Tax Act, 1956-Rules 31B restricts transport of goods pursuant to transactions in course of inter-State trade-Hence invalid. HEADNOTE: Under s. 5A of the Bihar Sales Tax Act 1959 as amended by the Bihar Finance Act, 1966 the purchase tax on goods declared under s. 3A was to be levied at the point of purchase made from a person other than a registered dealer. By a notification dated September 14, 1966 the Governor of Bihar declared jute as a commodity liable to purchase tax at the rate specified in the notification. The appellant carried on business in jute, In the course of his business he. purchased raw jute from producers in West Bengal, transported it to Kishenganj Railway Station in Bihar and then re-exported it to purchasers in West Bengal. He also bought raw jute in Bihar and exported it to merchants and mill-owners in West Bengal by rail from Kishenganj Railway Station. After the enactment of ss. 3A and 5A the State Government issued a notification dated December 26, 1967 purporting to exercise power under S. 42 of the Bihar Sales Tax Act, 1959 read with r. 31B of the Bihar Sales Tax Rules, 1959 notifying that no person shall tender at any railway station mentioned in Sch. 11 any consignment of goods mentioned in Sch. I exceeding the quantity specified for transport to any place inside the State of Bihar and no person shall accept such tender in accordance with the conditions laid down in the said R. 31B. Under Sch. I jute exceeding 800 kg. could not be tendered for transport without a despatch Permit and Kishenganj was one of the railway stations mentioned in Sch. 11. In July 1967 the Superintendent of Commercial Taxes prohibited the railway authorities from loading and despatching jute goods from any railway station in Purnea district without the production of a registration certificate. For non-production of such certificate the railway authorities refused to despatch from Kishenganj the jute goods booked by the appellant. The appellant moved a 'writ petition in the High Court of Patna challenging inter alia the validity ,of ss. 3A and 5A of the Bihar Sales Tax Act and of R.31B. The High Court dismissed the petition. With certificate the present appeal was filed. In support of the petition it was urged (i) that ss. 3A and 5A infringed the guarantee of freedom of trade under Art. 301 of the Constitution and since the amendment by the Finance Act, 1966 introducing these sections did not receive the assent of the President under Art. 304(b) the amendment was not saved; (ii) that ss. 3A and 5A were contrary to' s. 15 of the Central Sales Tax Act, 1956 and accordingly void; (iii) that P.- 31B framed by the State Government and the notification issued on December 2.6, 1967 were unauthorised and liable to be struck down. HELD: (i) The assumption that the levy of purchase tax must be deemed in all circumstances to violate the guarantee under Art. 301 and 413 the levy will be valid only if the Act is enacted by the State Legislature with the previous sanction of the President cannot be accepted as correct. Imposition of tax may in certain circumstances impede free flow of trade, commerce and intercourse. But every tax does not have that effect.[417 G; 419 E] State of Madras v. N. K. Nataraja Mudaliar [1968] 3 S.C.R. 829, Atiabari Tea Co. Ltd. v. State of Assam, [1967] 1 S.C.R. 809 and The Andhra Sugars Ltd. v. State of Andhra Pradesh, 21 S.T.C. 212, applied. In the present case the petitioner has made no averments in his petition which supported the plea that imposition of purchase-tax directly and immediately restricts or impedes the free flow of trade. Since power to impose purchase tax under s. 3A was not shown to restrict or impede the free flow of trade directly and immediately, it need not seek to derive for its validity, support from Art.. 304(b). [419 G] (ii) By s. 15 of the Central Sales Tax Act, tax liable in respect of declared goods on transactions of sale or purchase is restricted to 3% and is not leviable at more than one stage. There was no dispute that the purchase tax on jute was leviable at the first point of purchase under S. 3A of the Bihar Sales Tax Act, and the rate of tax was not shown to exceed the maximum prescribed by s. 15 of the Central Sales Tax Act. The provisions of ss. 3A and 5A of the Bihar Sales Tax Act are not therefore inconsistent with the provisions of s. 15 of the Central Sales Tax Act. [420 E] (iii) Rule 31B of the Bihar Sales Tax Rules must however be struck down as ultra vires. [420 F] The power of the State Legislature is restricted to legislate in respect of intra--State transactions of sale and purchase and to matters ancillary or incidental thereto : it has no power to legislate for levy of tax on sales and purchase in the course of inter-State transactions. The power conferred by s. 42 authorising the imposition of restriction or transport or movement of goods may only be exercised in respect of transactions which facilitate levy, collection and recovery of tax on transactions of intra--State sale or purchase. When r. 31B prohibits transport of goods to any place outside the State of Bihar unless a certificate is obtained from the appropriate authority, it seeks to prohibit transport of goods pursuant to transactions which may not even be of the nature of sale or purchase transactions; in any case it restricts transport pursuant to transactions in the course of inter--State trade and commerce. The operation of the rule is not restricted only to transactions in the course of intra State trade and commerce. The rule authorises restrictions on inter-State transactions and is on that account unauthorised. For the same reasons the notification issued on December 26, 1967 must be regarded as also unauthorised. [421 E-G] JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1985 of 1969.
Appeal from the judgment and order dated January 4, 1969 of
the- patna High Court in Civil Writ Jurisdiction case No.
520 of 1967.
M. C. Chagla, D. P. Singh and V. J. Francis, for the
appellant.
L. M. Singhvi and U. P. Singh, for respondents Nos. 1 to
4.
4 14
The Judgment of the Court was delivered by
SHAH, J. This appeal is filed with certificate granted by
the High Court of Patna under Art. 133 (1) (a) of the
Constitution.
The appellant Hansraj Bagrecha carries on business in jute.
In the course of his business the appellant buys raw jute
from producers in West Bengal, transports it to Kishanganj
Railway Station (which is within the State of Bihar) and
then re-exports it to purchasers in West Bengal. He also
buys raw jute in Bihar and exports it to the merchants or
mill owners in West Bengal by rail from Kishahganj Railway
Station.
The Bihar Sales Tax Act 1959, as originally enacted did not
provide for levy of purchase tax. By the Bihar Finance Act,
1966, with effect from April 1, 1967, among others the
following sections were incorporated in the Bihar Sales Tax
Act, 1959
S.3A “The State Government may from tune to
time, by notification declare any goods to be
liable to purchase tax on turnover of purchase
:
Provided that general sales tax and special
sales tax shall not be payable on the sale of
goods or class of goods declared under this
section.”
S. 5A “The purchase tax on goods declared
under section 3A shall be levied at the point-
of purchase made from a person other than a
registered dealer.”
By a notification dated September 14, 1966 the Governor of
Bihar declared ‘jute’ as a commodity liable to purchase tax
at the rate specified in the notification.
Section 42 of the Bihar Sales Tax Act by the first
subsection provided :
“No person shall transport from any railway
station, steamer station, air-port, post
office or any other place, whether of similar
nature or otherwise, notified in this behalf
by the State Govt., any consignment of such
goods, exceeding such quantity, as may be
specified in the notification, except in
accordance with such conditions as may be
prescribed and such conditions shall be made
with a view to ensuring that there is no
evasion of tax payable under this Act.”
Section 46 of the Act invested the State Government with
power to make rules for all matters expressly required or
allowed by the Act to be prescribed and generally for
carrying out the purposes of the Act and regulating the
procedure to be followed, forms to
415
be adopted and fees to be paid in connection with
proceedings under the Act and all other matters ancillary or
incidental thereto.
In exercise of the powers conferred under s, 46 (1) the
State of Bihar promulgated under Rules 31 B and 8C, Rule
31B, which provided
“(1) No person shall tender at any railway
station, steamer station, air-port, post-
office or any other place, whether of similar
nature or otherwise, notified under section
42, any consignment of such goods exceeding
such quantity, as may be specified ‘in the
notification, for transport to any place
outside the State of Bihar, unless such person
has obtained a despatch permit in Form XXVIII-
D from the appropriate authority referred to
in the Explanation to rule 31 and no person,
shall accept such tender unless the said
permit is surrendered to him.”
Rule 30(1) provided
“The first purchase of goods declared under
section 14 of the Central Sales Tax Act, 1956,
shall be leviable to tax in terms of sections
3, 3A and 5A of the Act and no subsequent
sales or purchases in respect of the said
goods shall be liable to any tax under the
Act.”‘
After the enactment of ss. 3A and 5A the State Government
issued. a notification dated December 26, 1967 purporting to
exercise power under s. 42 of the Bihar Sales Tax Act, 1959
read with r. 31B of the Bihar Sales Tax Rules, 1959,
notifying that no person shall tender at any railway station
mentioned in Sch. II, and consignment of goods mentioned in
Sch. I, exceeding the quantity specified for transport to
any place outside the State of Bihar and no person shall
accept such tender in accordance with the conditions
prescribed in r. 31B of the Bihar Sales Tax Rules, 1959.
Under Sch. I `Jute’ exceeding 800 Kg. could not be tendered
for transport without “a despatch pen-nit”, and Kishanganj
was one of the Railway Stations mentioned in Sch. II.
In July 1967 the Superintendent of Commercial Taxes addres-
sed a letter prohibiting the railway authorities from
loading jute goods and despatching them from any railway
station within the Purnea District of Bihar, except on
production of a “registration certificate”. By his letter
dated July 10, 1967 the Station Master Kishanganj called
upon the Secretary, Jute Merchants Association, Kishanganj,
to produce a certificate as required in the letter of the
Superintendent of Commercial Taxes, before “loading jute
goods for despatch was commenced” and informed them that in
default wagons allotted to the jute merchants shall be
cancelled and
416
registration, fees, forfeited and that “demurrage” win be
charged. The appellants request that jute booked by him be
despatched from. Kishanganj was turned down by the railway
authorities, because the registration certificate issued by
the Superintendent of Commercial Taxes, Purnea for the
movement of jute from the place was not produced.
The appellant then moved a petition before the High Court of
Patna on August 29, 1967 challenging the validity of ss. 3A,
5A, 42 and 46 and r. 31B of the Bihar Sales Tax Rules, 1959.
The High Court of Patna dismissed the petition. With
certificate granted by the High Court this appeal has been
preferred by the appellant.
In support-of the appeal counsel for the appellant raised
three contentions :
(1) that ss. 3A & 5A as incorporated 4th Finance Act of
1966 infringed the guarantee of freedom of trade under Art.
301 of the Constitution and since the amendment made by the
Finance Act, 1966 did not receive the assent of the
President under Art. 304(b) the amendment was not saved;
(2) that ss. 3A & 5A and r. 8C “were contrary to” s. 15 of
the Central Sales Tax Act, 1956 and were void on that
account; and
(3) that r. 31B framed by the State Government and the
notification issued on December 26, 1967 were unauthorised
and liable to. be struck down.
Article 301 of the Constitution guarantees freedom of trade,
commerce and intercourse throughout the territory of India.
By Art. 302 the Parliament is authorised by law to impose
such restrictions on the freedom of trade, commerce or
intercourse between one State and another or within any part
of the territory ofIndia as may be required in the public
interest. Art. 303(1) imposes restrictions upon the power
which the Parliament or the Legislature of a State may
exercise to make any law giving, or authorising the giving
of, any preference to one State over another, or making or
authorising the making of, any discrimination between one
State and another, by virtue of any entry relating to trade
and commerce in any of the Lists in the Seventh Schedule.
But that clause does not operate to restrict the power of
the Parliament to make any law giving, or authorise the
giving of, any preference or making or authorising the
making of, any discrimination, if it is declared by such law
that it is necessary to do so for the purpose of dealing
with a situation arising from
417
scarcity, of in, any part of, the territory of India
Art 303
(2). Art. 304 provides in so far as it is relevant
“Notwithstanding anything in article 301 :or
article
303, the Legislature of a State may by law-
(a)
(b) impose such reasonable restrictions on
the freedom of trade, commerce or intercourse
with or within that State as may be required
in the public interest
Provided that no Bill ‘or amendment for the
purpose of clause (b) shall be introduced or
moved in the pose Legislature, of a State
without the Previous sanction of the
President.”
Art. 304 is in terms a restriction on the freedom guaranteed
by Art. 301. Notwithstanding the amplitude of, the freedom
of trade, commerce and intercourse throughout the territory
of India, the Legislature of a State may by law impose,
among others such reasonable restrictions on the,, freedom
of trade,, cow or intercourse with or within that State as
may be required in the public interest. But that authority
to impose reasonable, restrictions on the freedom of trade,
may only be, exercised by the Legislature of a State if the
Bill or amendment for the Purpose of cl. (b) is introduced
or moved in the Legislature of a State with the previous
sanction of the President.
It was contended that since s. 3A providing for the of
purchase tax imposes a restriction on the freedom of trade,,
commerce and intercourse and on that account violates the
freedom of trade guaranteed by Art. 301, it way be saved
only if it is legislation of the nature contemplated by Art.
304(b) and the Bill which was enacted into the Act received
the previous assent of the President. The assumption that the
levy of purchase tax must be deemed in all
circumstances, to violate the . guarantee under Art. 30 1,
and the levy will be valid only, if the Act is enacted by
the State Legislature with the previous sanction of the
President, cannot be accepted’as correct. This Court in The
State of Madras v. N. K. Nataraja Mudaliar(1)–examined the
validity of laws which impose taxes on sale in the: light of
Art. 301. It was observed at p. 839
“This Article (Art. 301) is couched in terms
of the widest amplitude, trade, commerce and,
intercourse am thereby declared free and
unhampered, throughout the story of India.
The freedom of trade
(1) [1968] 3 S. C. R. 829.
so declared is against the imposition of
barriers or obstructions within the state as
well as inter-State all restrictions which
directly and immediately affect the movement
of trade are, declared by Art 301 to in-
effective. The extent to which Art. 301
operates to make trade. and commerce free has
been considered by this Court in several cases
In Atiabari Tea Co. Ltd. v., The State of
Assam and others(1) Gajendragadkar, speaking
for himself and Wanchoo and Das Gupta JJ.,
observed at p. 860
“……..we think it, would be reasonable and
proper to hold that restrictions, freedom from
which is guaranteed by art 301 would be such
restrictions as,directly and immediately
restrict or impede the free flow or movement
of trade.”
“In Automobile Transport (Rajasthan) Ltd v.
The State of Rajasthan and others(2) the view
expressed by Gajendragadkar, J., in Atiabari
Tea Co’s case was accepted by the majority.
Subba Rao, J., who agreed with the majority
observed that the freedom declared under Art.
301 of the Constitution of India referred to
the right of free movement of trade without
any obstructions by way of barriers, inter-
State or intra–State, or other impediments
operating as such barriers. The same view was
expressed in Firm A.T.B. Mehtab Majid and
Company v. State of Madras and Another(3) by a
unanimous Court. It must be taken as settled
law that the restrictions or impediments which
directly and immediately impede or hamper the
free flow of trade commerce and intercourse
fall within the prohibition imposed by Art.
301 and subject to the other provisions of
the Constitution they may be regarded as void.
But it is said that by imposing tax on sales, no restriction
hampering trade is imposed. In the Atiabari Tea Company’s
case, Gajendragadkar, J., observed:
“Taxes may and do amount to restrictions; but
it is only such taxes as directly and
immediately restrict trade that would fall
within the purview of Art. 30 1. The argument
that all taxes should be governed by Art. 301
whether or not their impact on trade is
immediate or mediate, direct or remote,
adopts, in our opinion, an extreme approach
which cannot be upheld.”
In a recent judgment of this Court in The Andhra Sugars Ltd.
and Another v. The State of Andhra Pradesh. and others(4)
(1) [1961] 1 S.C.R. 809.
(3)[1963] 1 S.C.R. 491.
(2)[1963] Supp. 2 S. C. R 435.
(4) 21 S.T.C. 212
419
Bachawat, J., speaking for the Court after referring to, the
observations made by Gajendragadkar, J., in Atiabari Tea
Company’s case(1) observed
“This interpretation of Article 301 was not
dissented from in Automobile Transport
(Rajasthan) Ltd. v. State of Rajasthan (2) .
Normally, a tax on sale of goods does not
directly impede the free movement or transport
of goods. Section 21 is no exception. it does
not impede the free movement or transport of
goods and is not violative of Article 301.”
Section 21 of the Andhra Pradesh Sugar Cant (Regulation of
Supply and Purchase) Act which was referred to in the
judgment authorised the State Government to levy a tax at
such rate,
“not exceeding five rupees per metric tonne as
may be prescribed on the purchase of cane
required for use, consumption or sale in a
factory. It must, therefore, be regarded as
settled law that a tax may in certain cases
directly and immediately restrict or hamper
the flow of trade, but every imposition of tax
does. not do so.”
Imposition of tax of the nature of purchase tax does not by
itself restrict freedom of trade, commerce or intercourse.
Imposition of tax may in certain circumstances impede free
flow oftrade, commerce or intercourse. But every tax
doesn’t have that effect. Imposition of a purchase-tax by
the State does not by itself infringe the guarantee: of
freedom under Art.301.
The argument that imposition of sales or purchase-tax must
be regarded in all cases as infringing the guarantee of
freedom under Art. 301 cannot be accepted as correct.
The appellant filed the petition out of which their appeal
arises soon after the Station Master informed the Jute
Merchants Association about his inability to book
consignments of jute. He has made no averments in the
petition which support the plea that imposition of purchase-
tax “directly and immediately restricts or impedes” the free
flow of trade. Since power to impose purchase tax under S.
3A on notified goods is not- shown to restrict or impede the
free flow of trade directly and immediately, it need not
seek to derive, for its validity, support from Art. 304(b).
The contention that ss. 3A & 5A are inconsistent with s. 15
of the Central Sales Tax Act, 1956 is without substance. By
s. 14 of ‘the ‘Central Sales, Tax Act, 1956 certain classes
of goods are declared goods of special importance in inter-
State trade or commerce. Jute is one of such classes of
goods. By s. 15 as
(1) [1961] 1 S. C. R. 809.,
(2) [1963] 1 S. C. R, 491.
420
amended by the Central Sales Tax Second Amendment Act, XXXI
,of 1958 it is provided
“Every sales tax law of a State shall, in so
far as it imposes or authorises the imposition
of a tax on the ,sale or purchase of declared
goods, be subject to ‘the following
restrictions and conditions, namely
(a) the tax payable under that law in
respect of any sale of purchase of such goods
inside the state shall not exceed three- per
cent of the sale or purchase price thereof,
and such tax shall not, be levied at more than
one stage;
(b) where a tax has been levied under that
law in respect of the sale or purchase inside
the state of any declared goods and such goods
are sold in the course of inter-state trade or
commerce, the tax so levied shall refunded to
such person in such manner and subject to such
conditions as may be provided in any law in
force in that State.”
By S. 15 of the Central Sales Tax Act in respect of the
declared goods on transactions of sale or purchase the tax
leviable is restricted to 3 % and is not leviable at more
than one stage. There, is no dispute that the purchase tax
on jute is leviable at the first point of purchase under
s. 3A of the Bihar Sales Tax Act, and the rate of tax also
is not shown to exceed the maximum prescribed by S. 15 of
the Central Sales Tax Act. The provisions of ss. 3A & 5A of
the Bihar Sales Tax Act are not therefore inconsistent with
the provisions of s. 15 of the Central Sales Tax Act.
But, in our judgment, r. 31B of the Bihar Sales Tax, Rules,
1959 and the notification issued on December 26, 1967 are
unauthorised and must be struck down. The Bihar Sales Tax
Act is enacted by the Legislature to consolidate and amend
the, law relating to the levy of tax on the sale and
purchase of goods in Bihar. The State Legislature is
competent in enacting sales-tax legislation to make a
provision which is ancillary or incidental to any provision
relating to levy,; collection and recovery of sales–tax and
purchase-tax. _ A provision which is made by the Act or by
the Rules which seeks to prevent evasion of liability to pay
tax on intra–State sales or purchase would therefore be
within the competence of the Legislature or the authority
competent to make the rules . But the State Legislature has
no power to legislate for the levy of tax on transactions
which are carried on in the course of inter-State trade or
commerce or in the course of export. Section 42 of the
Bihar Sales Tax Act, 1959, prevents any person from
transporting from any railway station, steamer station,
421
air-port, post office or any other place any consignment of
such goods exceeding the.quantity specified with a view to
ensuring that ‘there is no evasion of tax payable under the
Act. But the power under s. 42 can only be exercised in
respect of levy, collection and recovery of intra–State or
purchase tax. It cannot be utilised for the purpose of
ensuring the effective levy of Inter State sales or purchase
tax.
The appellant purchased jute both within and without the
State of Bihar. In respect of transactions of purchase
within the State of Bihar and despatch of goods liability to
pay purchase-tax at the point of purchase may arise. In
respect of goods which are purchased in the State of West
Bengal and brought within the State of Bihar and then
despatched to other States in the course of inter-State
transactions no question of levy of purchase-tax under the
Bihar Sales Tax Act arises. R. 31 B framed by the State
Government seeks to prohibit transport in pursuance of
transactions which are inter State, for in terms it
prohibits transporting of goods to any place outside the
State of Bihar. Again transport of goods for personal
consumption oil use, or of goods, gifted, pledged or dealt
with otherwise than by sale, falls within the injunction
contained in r..31B.
The power of the State Legislature is restricted to
legislate in respect of intra–state transactions of sale
and purchase and to matters ancillary or incidental thereto
: it has no power to legislate for levy of tax on sales and
purchase in the course of inter State transactions. The,
power conferred by s. 42 authorising the imposition of
restriction on transport or movement of goods may only
be exercised in respect of transactions which facilitate
levy, collection and recovery of tax on
transactions of intra–State sale or purchase.- When r. 31B
prohibits transport of goods to any place outside
the State of Bihar unless a certificate is obtained from
the appropriate authority, it seeks to prohibit transport of
goods pursuant to transactions which may not even be of the
nature of sale or purchase transactions; in any case it
restricts transport pursuant to transactions in the
course of inter-Statetrade and commerce. The operation
of the rule is not restricted only to transactions in the
course of intra-State trade and commerce. The rule
authorises restrictions on inter-State transactions and is
on that account unauthorised. For the same reasons the
notification issued on December 26, 1967 must be regarded as
also unauthorised.
In the view we have taken r. 31B and the notification issued
bythe State Government on December 26, 1967 must be
declared ultra vires, and since r. 31B and the notification
are ultra vires the communication issued by the
Superintendent of Commercial
4 22
Taxes to the Railway Authorities must also be declared
unauthorised A writ will therefore issue declaring r. 31B
and the notification issued by the Government of Bihar on
December 26, 1967 ultra vires, and the letter written by the
Superintendent of Commercial Taxes to the Railway
Authorities is also declared unauthorised.
Having regard to the circumstances, we think there should be
no order as to costs.
G.C.
42 3