JUDGMENT
Hansaria, C.J.
1. A question of great importance relating to the power of the States to recover sales tax, by instituting what is called a garnishee proceedings, from industrial companies governed by the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter to be called “the Central Act”), has come up for decision in these cases. The point is of first impression also, and as such the same needs our detailed consideration.
2. The aforesaid point has arisen for decision on certain steps being taken by different Sales Tax Officers of this State under the provisions of Section 13A(1) of the Orissa Sales Tax Act, 1947 (for short “the State Act”), which is in the following language :
“13A. Special mode of recovery.–(1) Notwithstanding anything contained
in Section 13 or any law or contract to the contrary, the Commissioner or any
officer appointed under Sub-section (3) of Section 3 may, at any time or from
time to time, by notice in writing (a copy of which shall be forwarded to the
dealer at his last address known to the officer issuing the notice) require-
(a) any person from whom any money is due or may become due to a dealer who has failed to comply with a notice served under Sub-section (4) or Sub-section (5) of Section 13, or has failed to pay any interest due from him under this Act ; or
(b) any person who holds or may subsequently hold for or on account of such dealer to pay into the Government treasury in the manner specified in the notice issued under this sub-section either forthwith or upon the money becoming due or being held, or at or within the time specified in the notice not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount of tax due from the dealer or penalty or both, as the case may be, under this Act, or the whole of money when it is equal to or less than that amount.”
3. It is common knowledge that such a provision finds place in the sales tax laws of various States and as such the point involved is of seminal importance not only for this State but for other States of the country also.
4. Such a notice under Section 13A(1) has been issued both in the case of the petitioner (Aluminium Industries Ltd.) and the intervener (Tata Davy Ltd.). The legality of the same has been assailed on the strength of Section 22(1) of the Central Act which reads as below :
“22. Suspension of legal proceedings, contracts, etc.–(1) Where in respect of an industrial company an enquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority.” (emphasis* supplied)
5. Our attention has also been invited by Shri Chandurkar appearing for the intervener to Section 32(1) of the Central Act, which is in the following language :
“32. Effect of the Act on other laws.–(1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976), for the time being in force or in the memorandum or articles of association of an industrial company or any other instrument having effect by virtue of any law other than this Act.”
6. The precise point for determination is whether the provisions of Section 22(1) of the Central Act would override and efface Section 13A(1) of the State Act. According to Shri Chandurkar, Section 13A(1) of the State Act has to give place to the provisions of Section 22(1) of the Central Act because of what has been stated in Article 246 of the Constitution. We may read the relevant part of this article :
“246. Subject-matter of laws made by Parliament and by the Legislatures of States.–(1) Notwithstanding anything in Clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the “Union List”).
(2) Notwithstanding anything in Clause (3), Parliament, and, subject to Clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the “Concurrent List”).
(3) Subject to Clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the ‘State List’).”
7. Before proceeding to examine the constitutional point involved, let us clear the deck by considering whether, to these cases at hand, Section 22(1) of the Central Act has any application at all. It has not been disputed before us by learned standing counsel that the petitioner as well as the intervener are both sick industrial companies and that a scheme as contemplated by Section 17 of the Central Act relating to them is under preparation. The precondition for operation of Section 22 of the Central Act, therefore, exists in both the cases. We are also satisfied that, by invoking the power under Section 13A(1) of the State Act by asking any person from whom any money is due or may become due to a dealer, the Sales Tax Officer takes steps which have to be regarded as being in the nature of execution against any of the properties of the industrial company. The money which the Sales Tax Officer requires by issuing notice under Section 13A(1) of the State Act definitely belongs to the dealer and as the garnishee proceeding has to be regarded as being in the nature of an execution proceeding, the ban imposed by Section 22(1) of the Central Act does not get violated. Though learned standing counsel has strenuously urged that Section 22(1) of the Central Act has no application in a case of the present nature, inasmuch as the same would apply only when the proceeding for winding up of the industrial company is in progress, we are not satisfied with this submission of learned standing counsel. The submission was, however, advanced because, according to counsel for the Department, the words “winding up of the industrial company or for execution, distress or the like” finding place in Section 22(1) of the Central Act have to be read ejusdem generis. We are not persuaded to accept the submission inasmuch as for the rule of ejusdem generis to apply, there must be a list or string or family of genus-describing terms which are followed by wider or residuary or sweeping words. In such a situation, the verbal context and the lingustic implications of the preceding words limit the scope of the subsequent general words. This is what has been stated about this rule in Siddeshwari Cotton Mills (P.) Ltd. v. Union of India, AIR 1989 SC 1019. The language of Section 22(1) of the Central Act which has been noted above does not satisfy the requirement of this rule as explained in the aforesaid decision and it is because of this that we have not found it possible to accept the submission of learned standing counsel. The width of the aforesaid words of Section 22(1) of the Central Act cannot be cut down by applying the rule of ejusdem generis.
8. The question, therefore, is whether the provision of Section 22(1) of the Central Act would override the provisions of Section 13A of the State Act because of what has been contained in Section 32(1) of the Central Act and what has been provided in Article 246 of the Constitution.
9. We are thus required to enter the constitutional thicket relating to the distribution of legislative powers between the Union and the States and the field of operation of the same. Though an effort has been made in the Constitution to make the three lists of the Seventh Schedule mutually exclusive, it has not been possible to avoid conflict between the Union law and the State law. It is because of this that Article 246 of the Constitution had to lay down the principle of federal supremacy, for, otherwise “an absurd situation would result if two inconsistent laws, each of equal validity, could exist side by side within the same territory”. (Per Gwyer C. J. in Subrahmanian Chettiar v. Muttuswami Goundan, AIR 1941 FC 47). Of course, an attempt has first to be made to see whether a conflict can be avoided by construction. It is only when that reconciliation proved impossible, “… then, and only then, will the non-obstante clause operate and the federal power prevail ; for the clause ought to be regarded as a last recourse, a witness to the imperfections of human expression and the fallibility of legal draftsmanship”, vide Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, In re, AIR 1939 FC 1 (see para 2.46 of Constitutional Law of India, third edition, volume I, by Shri H. S. Seervai).
10. To resolve conflicts which arose from overlapping powers in mutually exclusive lists, the doctrine of pith and substance was evolved by the Privy Council while dealing with such a question arising under Sections 91 and 92 of the British North America Act, 1867 (see Citizens Insurance Co. of Canada v. William Parsons [1881] 7 AC 96). Gwyer C. J. applied the same principle when a similar question arose under Section 100 of the Government of India Act, 1935. This was done in Subrahmanian v. Muttuswami Goundan, AIR 1941 FC 47. This view was approved by the Privy Council in Prafulla Kumar Mukherjee v. Bank of Commerce Ltd., AIR 1947 PC 60 and Prafulla Kumar’s case, AIR 1947 PC 60, has been approved by the Supreme Court in laying down the correct rule to be applied in resolving a conflict of the present nature. If, in pith and substance, an Act is found to be covered by the list in question, any incidental encroachment on a forbidden field woud not affect the competence of the Legislature to enact that Act (See page 25 of Hoechst Pharmaceuticals [1985] 55 STC 1 ; 154 ITR 64 (SC and para 2.45 of Seervai).
11. The scope of the principle of federal supremacy laid down in Article 246 of the Constitution had come up for examination in Hoechst Pharmaceuticals Ltd. v. State of Bihar [1984] 154 ITR 64 ; 55 STC 1 ; AIR 1983 SC 1019, and it was stated that this principle cannot be resorted to unless there is an “irreconcilable” conflict between the entries in the Union and the State lists. In the case of seeming conflict between the entries in the two lists, the entries should be read together without giving a narrow and restricted sense to either of them. Secondly, an attempt should be made to see whether the two entries cannot be reconciled so as to avoid a conflict of jurisdiction. It should be considered whether a fair reconciliation can be achieved by giving to the language of the Union legislative list a meaning which, if less wide then it might in another context bear is yet one that can properly be given to it and equally giving to the language of the State legislative list a meaning which it can properly bear. The non obstante clause in Article 246(1) must operate only if such reconciliation should prove impossible. Thirdly, no question of conflict between the two lists will arise if the impugned legislation, by the application of the doctrine of pith and substance, appears to fall exclusively under one list, and the encroachment upon another list is only incidental.
12. Another doctrine with which we would be concerned in resolving the tangle at hand is that of colourable legislation. When the Legislature transgresses the limits of its constitutional power, the same may either be patent, manifest or direct ; but it may alo be disguised, covert and indirect. In the case of the former, the law is obviously bad for non-compliance with the requirements of the Constitution and the law in such a case is ultra vires. Where, however, the transgression is disguised, it is referred to as colourable legislation. The connotation is that although apparently a Legislature purports to act within the limits of its own powers, yet in substance and reality it encroaches upon a field prohibited to it, requiring an examination, with some swiftness, of the substance of the legislation for the purpose of determining what is it that the Legislature was really doing. This type of transgression is called a fraud on the Constitution, the fraud complained of being that the Legislature pretends to act within its power while in fact it is not so doing. By this device, the Legislature purports to make a law which, though in form, appears to be within its sphere, in effect and substance, reaches beyond it. (See State of Bihar v. Sir Kameshwar Singh, AIR 1952 SC 252 ; Gajapati Narayan Deo v. State of Orissa, AIR 1953 SC 375 ; B. R. Shanharanarayana v. State of Mysore, AIR 1966 SC 1571, and Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97 ; [1989] 3 SCC 634 ; 74 STC 102.
13. Another principle of construction with which we would be concerned is relatable to the interpretation of the entries finding place in the Seventh Schedule to the Constitution. It has been often said that the various entries in the three lists are not “powers” of legislation, but “fields” of legislation–the power to legislate being given by Article 246 and other articles of the Constitution. This apart, the language of the entries is required to be given the widest scope of which their meaning is fairly capable because they set up a machinery of Government. The entries in the three lists must, therefore, be read in a broad and liberal sense. Each general word should, accordingly, be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. (See Calcutta Cas Co. (Proprietary) Ltd. v. State of West Bengal, AIR 1962 SC 1044 ; Union of India v. Harbhajan Singh Dhillon, [1972] 83 ITR 582 (SC) ; AIR 1972 SC 1061 ; Duni Chand Rataria v. Bhuwalka Brothers Ltd., AIR 1955 SC 182 ; Sri Ram Narain Medhi v. State of Bombay, AIR 1959 SC 459 ; Hans Muller of Nurenburg v. Superintendent, Presidency Jail, AIR 1955 SC 367 ; Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 ; AIR 1955 SC 58 ; C7T v. Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) ; AIR 1957 SC 768 and Chaturbhai M. Patel v. Union of India, AIR 1960 SC 424.
14. Yet another principle to which reference may be made in this context is that while the widest amplitude should be given to the language given in the one entry, every attempt should be made to harmonize its contents with some other entries operating in the same field so that the latter may not be robbed of their entire content and rendered nugatory, as stated in Calcutta Cas Co. (Proprietary) Ltd. v. State of West Bengal, AIR 1962 SC 1044.
15. Before we apply the aforesaid legal principles to resolve the dispute at hand, it may be pointed out that there is no challenge before us to the constitutional validity of either of the two provisions with which we are concerned, namely, Section 22(1) of the Central Act and Section 13A of the State Act. We would, therefore, confine ourselves to find out the real scope of the two sections and whether both of them can be allowed to operate in their own fields in harmony. To do so, we have first to note the language of the relevant entries. According to Shri Chandurkar, the Central Act is covered by entry 52 of list I which reads “industries the control of which by the Union is declared by Parliament by law to be expedient in the public interest”. It is impressed upon us by Shri Chandurkar by referring to the preamble of the Central Act and its Statement of Objects and Reasons that what has been laid down in Section 22(1) of the Central Act is, in pith and substance, covered by entry 52, and if there is any transgression on the State legislative field, the same is only incidental. As against this, learned standing counsel contends that the relevant part of Section 22(1) of the Central Act is an instance of colourable legislation inasmuch as entry 54 of list II which reads “Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of list I” has left all matters relating to sales tax to the exclusive jurisdiction of the State Legislature, and this power has been encroached upon covertly by Section 22(1) of the Central Act. It is contended in this connection, and rightly, that the power to levy tax includes the power of providing machinery for recovery of tax. Reliance is placed in support of this proposition on Rai Ramkrishna v. State of Bihar [1963] 50 ITR 171 (SC) ; AIR 1963 SC 1667 ; and Khyerbari Tea Co. Ltd. v. State of Assam, AIR 1964 SC 925.
16. As we are concerned in the present case with the power of the State Legislature to recover sales tax with the aid of Section 13A of the State Act, it would be in the fitness of things to examine the width of entry 54 of the State list which is the relevant entry in so far as the State Act is concerned. This exercise was done by the Supreme Court in Hoechst Pharmaceuticals’ case, [1985] 154 ITR 64 (SC) and it was pointed out that the power to impose tax on the sale and to make ancillary provision in that behalf is plenary. It was observed that entry 52 of List II is only subject to entry 92A of List I and there can be no further curtailment of the State’s power of taxation.
17. In the aforesaid case, these observations were made while examining the validity of Section 5(3) of the Bihar Finance Act, 1981, which provision ran counter to what was laid down in the Drug (Price Control) Order, 1979, which had been issued by the Central Government under Section 3(1) of the Essential Commodities Act, 1955. The argument was that the provision of Section 5(3) of the Bihar Finance Act which stated that the surcharge in question could not be collected from the purchasers, had to yield to the aforesaid price control order which enabled the manufacturers or producers of drugs to pass on the liability to the consumers, in view of what was laid down in Section 6 of the Essential Commodities Act according to which any order made under Section 3 would have effect notwithstanding anything inconsistent therewith contained in any enactment other than the Essential Commodities Act. The apex court pointed out that the power of the State Legislature under entry 34 of List II was not controlled by the power of Parliament to make law under entry 33 of List III which is the relevant entry relating to the Essential Commodities Act, 1955. The provision of Section 6 of the Essential Commodities Act, was, therefore, not allowed to override the provisions of Section 5(3) of the Bihar Finance Act.
18. Though in Hoechst Pharmaceuticals’ case [1985] 154 ITR 64 (SC), the apex court was concerned with the law made by Parliament under entry 33 of List III, according to us, the same would apply to the law made under entry 52 of List I, We have said so because by virtue of what has been stated in Clauses (2) and (3) of Article 246, the law made by the Legislature of any State with respect to any of the matters enumerated in List II is subject to any law made by Parliament with respect to any of the matters enumerated in List III also, as in the position relating to any law made by Parliament in respect of matters mentioned in List I.
19.
In Hoechst Pharmaceutical’ case [1985] 154 ITR 64 (SC), while dealing with the taxing power of the States on sale of goods under entry 54 of list II, the court has made very pertinent observations regarding the taxing power of the States. It has been observed that, following the scheme of the Government of India Act, 1935, the Constitution has made the taxing power of the Union and the States mutually exclusive and thus avoided the difficulties which have arisen in some other federal constitutions from overlapping powers of taxation. It has been further pointed out in this case that there is a distinction between the general subjects of legislation and taxation which is considered as a distinct matter for purposes of legislative competence. The general subjects of legislation are dealt with in one group of entries and the power of taxation in a separate group. In List I, entries 1 to 81 deal with the general subjects of legislation ; entries 82 to 92A (now 92B) deal with taxes. In List II, entries 1 to 44 deal with the general subjects of legislation ; entries 45 to 63 deal with taxes. The mutual exclusiveness is also brought out by the fact that in List III, there is no entry relating to taxes, but it only contains an entry relating to levy of fees in respect of matters given in that list other than court fees. It is because of this that it was observed that, in our Constitution, a conflict of the taxing power of the Union and of the States can-not arise.
20. As already noted, the power of taxation covered by entry 54 of List II has to take within its fold the power to make ancillary provisions in that regard. The special mode of recovery contemplated by Section 13A of the State Act has to be regarded as an ancillary provision inasmuch as the power to levy tax has to include the power of providing machinery for recovery of tax which proposition finds support from what has been stated in para 19 of Khyerbari’s case, AIR 1964 SC 925 (para 9 of Rai Ramkrishna’s case [1963] 50 ITR 171 (SC) ; AIR 1963 SC 1667 may also been seen).
21. Being of the view that the power of recovery of tax by invoking the aid of Section 13A of the State Act has to be regarded as comprehended within the four corners of entry 54 of List II, the ratio of Hoechst Pharmaceuticals’ case [1985] 154 ITR 64 (SC), has to apply. It was observed in that case at para 31 on this aspect of the controversy that it was difficult to comprehend the submission that there could be intrusion by law made by Parliament under entry 33 9f List III in a forbidden field, viz., the State’s exclusive power to make law with respect to levy and imposition of tax on sale or purchase of goods relatable to entry 54 of List II. It was, therefore, ultimately, held that the two provisions of law with which that case was concerned operated in two separate and distinct fields and both were capable of being obeyed. We would take the same view in the present case and state that the principle of federal supremacy laid down in Article 246 of the Constitution would not be available in the present case as there is no “irreconcilable” conflict between the two provisions of law with which we are concerned as they operate on two separate and distinct fields and, therefore, both are capable of being obeyed. The result of this view is that Section 22(1) of the Central Act would not protect the properties of industrial companies from being proceeded against in exercise of the power under Section 13A of the State Act.
22. Before parting, we may say that we are conscious of the fact that sick industrial companies must be allowed to be rehabilitated as early as possible in public interest also because of the ill effects of sickness on production, employment, locking up of investible funds of banks and financial institutions ; and so nothing should be done to thwart their revival attachment of their own money (garnishee proceeding produces this result) does undoubtedly affect them adversely (sic). We would have felt happy if the two Acts read together had allowed us to stop garnishee proceedings under the State Act against them, but it has not been possible to do so.
R.C. Patnaik, J.
23. I agree.