PETITIONER:
BABU RAM JAGDISH KUMAR & CO., ETC., ETC.
Vs.
RESPONDENT:
STATE OF PUNJAB & ORS., ETC., ETC.
DATE OF JUDGMENT04/05/1979
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
UNTWALIA, N.L.
PATHAK, R.S.
CITATION:
1979 AIR 1475 1979 SCR (3) 952
1979 SCC (3) 616
CITATOR INFO :
R 1981 SC1206 (6,13)
D 1984 SC1870 (17)
ACT:
Punjab Sales Tax Act, 1948-S. 31-Constitutional
validity of-Legislature. If could delegate power to
executive to add or delete anything in Schedules to the Act.
Words & Phrases "Taxable event" and "taxable person"-
Meaning of.
HEADNOTE:
Section 5(1) of the Punjab Sales Tax Act, 1948
authorises the State Government to determine the rates of
tax payable on the taxable turnover of a dealer not
exceeding the limit prescribed therein. Sub-section (2) lays
down the principles governing the determination of the
taxable turnover. Schedule 'C' of the Act refers to goods,
the turnover of which is subject to purchase tax. Section 31
of the Act which gives specific power to the State
Government to amend Schedule 'C' provides that after giving
by notification, not less than three months' notice of its
intention so to do the State Government may add to or delete
from Schedule 'C' any goods and thereupon Schedule 'C' shall
be deemed to be amended accordingly.
By a notification dated January 15, 1968 the State
Government added in Schedule 'C', "paddy" and "rice" as
items on which purchase tax could be levied. As a result of
this notification turnover relating to the purchase of paddy
and rice became exigible to purchase tax in the hands of the
purchasers with effect from that date.
The appellants who are dealers in paddy, buy paddy in
the first instance and sell rice after converting paddy into
rice. They filed writ petitions in the High Court
questioning the validity of s.31 of the Act and the
notification issued thereunder and their liability to
payment of purchase tax. The High Court dismissed the writ
petitions.
In appeal to this Court it was contended that s. 31 of
the Act which authorised the State Government to vary
Schedule 'C' by adding certain goods whose turnover was not
liable to payment of sales tax earlier, suffered from the
vice of excessive delegation of legislative power.
Dismissing the appeals,
^
HELD: 1(a) The delegation of power to the State
Government to determine whether any class of goods should be
included or excluded from Schedule 'C' to the Act cannot be
considered as unconstitutional. [967G]
(b) The case in so far as s. 31 of the Act which is an
integral part of a single enactment and which authorises the
State Government to amend Schedule 'C' to the Act cannot be
different from the case which was dealt
953
with by the Constitution Bench, in Pt. Banarsi Das Bhanot v.
State of M.P., [1959] SCR 427. If it is permissible for the
Legislature to authorise the State Government to convert tax
free goods into taxable ones, there is hardly any
justification for holding that the State Government cannot
be entrusted with the power to include goods in Schedule 'C'
making their purchase turnover taxable. [968 D-F]
(c) It is well established that the delegation of power
by the legislature to a local authority or to the executive
Government to vary or modify an existing law would not be
unconstitutional so long as such delegation does not involve
the abdication of essential legislative power by the
legislature. Such delegations of legislative powers have
been upheld by this Court on several varied and diverse
grounds such as the scheme and policy of the statute under
which the power is delegated, the presence of guidelines in
the statute regarding the exercise of delegated power, the
lack of time for the legislature to make provision with
regard to all the details involved in the administration of
law, the incapacity of the legislature to foresee future
events, the nature of the subject matter of the legislation
and the nature of the donee of power etc. Even in matters
relating to taxation laws, it has been consistently held
that the legislature can delegate the power to fix rates of
tax provided there are necessary guidelines regarding such
fixation on the ground that in a modern society, taxation is
one of the methods by which economic and social goals of
State can be achieved and the power to tax should be
flexible and capable of being easily altered to meet the
exigencies of circumstances. Such delegation has been held
to be not amounting to delegation of essential legislative
function. [959A-D]
Pt. Banarsi Das Bhanot v. State of M.P. & Ors., [1959]
SCR 427; Municipal Corp. of Delhi v. Birla Cotton, Spinning
and Weaving Mills, Delhi & Anr., [1968] 3 SCR 251;
Corporation of Calcutta & Anr. v. The Liberty Cinema, [1965]
2 SCR 477; Sita Ram Bishambar Dayal & Ors. v. State of U.P.
JUDGMENT:
State of U.P & Anr. etc., etc. [1973] 2 SCR 502; referred
to.
2(a) The argument that even though s. 31 was not
unconstitutional the notification was not enforceable
against the appellants has no force. In Pt. Banarsi Das
Bhanot v. State of M.P. it has been held that it is open to
the Legislature to delegate the power to withdraw the
exemption which has been given by the Legislature in respect
of certain transactions specified in the Act under
consideration in that case. It cannot be said that the
principal object of the Act is to encourage manufacturing
industry. The Act is a fiscal legislation and its object is
to collect revenue for the purpose of meeting the
expenditure of the Government. It is true that while levying
tax under the Act, the Legislature may grant exemptions in
certain cases and may decline to grant exemption in other.
The question whether such exemption should be given or not
is only incidental or ancillary to the principal object
viz., the object of levying tax for the purpose of
collecting revenue. It cannot be said that when certain
goods are sold in favour of a manufacturer, the seller is
always entitled to deduct such sales turnover from the gross
turnover. He can do so only when such goods are specified in
the certificate of registration obtained by the purchaser
and they are used by him in the
954
manufacture in the State of any goods other than goods
declared tax free under s. 6 of the Act for sale in the
State. Transactions in paddy cannot be considered as having
been generally exempted from payment of tax under the Act.
Section 5(2)(a)(ii) of the Act grants exemption from payment
of sales tax on the turnover of goods sold in favour of a
manufacturer under the circumstances mentioned therein only
to the seller and not to the buyer even though indirectly
the buyer may be benefited thereby. [970A-F]
(b) The terms “taxable goods”, “taxable event” and
“taxable person” are three distinct concepts. In the instant
case the “taxable event” is the purchase of paddy and not
its sale which alone attracts s. 5(2)(ii) of the Act.
“Taxable person” i.e. the person liable to pay tax is the
purchaser and not the seller. The appellants cannot complain
that any exemption granted to them by the Act has been taken
away. Even though the liability to pay purchase tax may be
on the appellants, it is bound to have repercssions on the
price at which they buy paddy and the price at which rice
manufactured by them out of that paddy is sold by them. The
tax payable under the Act being an indirect tax, the tax
burden would ordinarily fall on the consumer of rice and not
on any of the intermediaries including the appellants. The
impugned notification cannot therefore, be treated as one
issued against the policy of the statute. [970G-H, 971A-B]
State of Tamil Nadu v. M. K. Kandaswami, etc., etc.,
[1976] 1 SCR 38; referred to.
&
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1028 of
1976.
Appeal by Special Leave from the Judgment and Order
dated 8-3-1976 of the Punjab and Haryana High Court in Civil
Writ Petition No. 354/75.
AND
CIVIL APPEAL NOS. 1029-1032 OF 1976
Appeals by Special Leave from the Judgment and Order
dated 8-3-1976 of the Punjab & Haryana High Court in C.W.P.
Nos. 564 and 582/75 and C.W.P. Nos. 1988 and 2000/76
respectively.
AND
CIVIL APPEAL NO. 1033 OF 1976
Appeal by Special Leave from the Judgment and Order
dated 31-5-1976 of the Punjab and Haryana High Court in C.W.
Petition No. 2580/76.
AND
CIVIL APPEAL NO. 1034 OF 1976
Appeal by Special Leave from the Judgment and Order 10-
6-1976 of the Punjab & Haryana High Court in Civil Writ
Petition No. 2890/76.
955
AND
CIVIL APPEAL NO. 1035 OF 1976
Appeal by Special Leave from the Judgment and Order
dated 28-6-1976 of the Punjab & Haryana High Court in Civil
Writ Jurisdiction No. 3216 of 1976.
M. C. Bhandare, A. K. Sen, (in CA 1029/76), Mrs.
Sunanda Bhandare, A. N. Karkhanis, Miss Malini Poduval and
G. R. Sethi (in CA 1031/76).
Soli J. Sorabjee, Addl. Sol. Genl. (In CA 1028/76),
Hardev Singh for the Respondents.
The Judgment of the Court was delivered by
VENKATARAMIAH, J.-In these appeals by special leave, we
are called upon to pronounce on the validity of section 31
of the Punjab General Sales Tax Act, 1948 (hereinafter
referred to as ‘the Act’), the Notification dated the 13th
January, 1968 issued thereunder by the Government of Punjab
and the liability of the appellants to pay purchase tax
under the Act in respect of the turnover relating to the
purchases of paddy made by them during the relevant period.
The appellants are dealers in paddy and engaged in the
business of millers in the State of Punjab. They buy paddy
from growers or katcha adatias, convert it into rice and
sell rice. Most of the rice manufactured by them is
purchased by the State Government under food procurement
orders.
A brief history of the relevant provisions of the Act
is as follows:-
Under the Act as it was originally enacted, there was
no provision levying tax on the purchase turnover of the
goods dealt with by a dealer as defined in the Act. The Act
was amended by Punjab Act No. 7 of 1958 which received the
assent of the Governor on April 18, 1958 and the amending
Act came into force at once. The amending Act brought about
the following changes in the Act:-
In the long title of the Act, after the word “sale”,
the words “or purchase” were inserted. Clause (d) of section
2 of the Act which defined the expression ‘dealer’ was
amended so as to bring within the scope of that expression a
person who purchased any goods in the course of trade or
business. The turnover relating to purchases made by a
dealer subsequent to the commencement of the amending Act of
certain goods was made liable to payment of tax. The
956
word ‘purchase’ was defined by clause (ff) of section 2
which was introduced by the amending Act as follows:-
“2. (ff) ‘purchase’ with all its grammatical or
cognate expressions, means the acquisition of goods other
than sugarcane, foodgrains, and pulses for use in the
manufacture of goods for sale for cash or deferred payment
or other valuable consideration otherwise than under a
mortgage, hypothecation, charge or pledge.”.. (The rest of
the clause is not necessary for the purpose of these cases).
Section 4 of the Act was amended by imposing tax on
purchases also subject to sections 5 and 6 of the Act. It
is, however, seen from clause (ff) of section 2 that the
purchase of foodgrains was not covered by the definition and
remained unaffected by the above amending Act.
The Act was further amended by Punjab Act No. 13 of
1959 which deleted the words “other than sugarcane,
foodgrains and pulses” in clause (ff) of section 2. Section
6 of the Act was repealed and substituted by a new section
which read as follows:-
“6. Tax free goods.-(1) No tax shall be payable on
the sale of goods specified in the first column of Schedule
C subject to the conditions and exceptions, if any, set out
in the corresponding entry in the second column thereof and
no dealer shall charge sales tax or purchase tax on the sale
or purchase, as the case may be, of goods which are declared
tax free from time to time under this section.
(2) The State Government after giving by
notification not less than three months’ notice of its
intention so to do may by like notification add to or delete
from Schedule B or Schedule C and thereupon Schedule B or
Schedule C, as the case may be, shall be deemed to be
amended accordinglly.”
It is seen from the above provision that the turnover
relating to the sale of goods mentioned in the first column
of Schedule ‘C’ to the Act subject to the conditions and
exceptions, if any, set out in the corresponding entry in
the second column thereof was exempted from payment of tax.
By Punjab Act No. 24 of 1959, the above section 6 was
substituted by a new section which read as follows:-
“6. Tax free goods.-(1) No tax shall be payable on
the sale of goods specified in the first column of Schedule
B
957
subject to the conditions and exception, if any, set
out in the corresponding entry in the second column thereof
and no dealer shall charge sale tax on the sale of goods
which are declared tax-free from time to time under this
section.
(2) The State Government after giving by
notification not less than three months’ notice of its
intention so to do, may by like notification add to or
delete from Schedule B and thereupon Schedule B shall be
deemed to be amended accordingly.”
By Punjab Act No. 18 of 1960, clause (ff) of section 2
of the Act which had undergone some alteration when Punjab
Act No. 24 of 1959 came into force was substituted by a new
clause which read:
“2. (ff) ‘purchase’, with all its grammatical or
cognate expressions, means the acquisition of goods
specified in Schedule C for cash or deferred payment or
other valuable consideration otherwise than under a
mortgage, hypothecation, charge or pledge.”
The effect of the said amendment was that the turnover
relating to the purchase of goods mentioned in Schedule ‘C’
to the Act became liable to tax subject to the other
provisions of the Act. Section 4 of the Act was also amended
by the introduction of sub-section (2-A) providing that
notwithstanding anything contained in sub-sections (1) and
(2) of section 4 of the Act, no tax on the sale of any goods
should be levied if a tax on their purchase was payable
under the Act. Originally seven items of goods had been
specified by the State Legislature in Schedule ‘C’ to the
Act. By the Punjab General Sales Tax (Amendment) Act, 1965
(Punjab Act No. 28 of 1965) section 31 was inserted in the
Act authorising the State Government to amend Schedule ‘C’.
It read as follows:-
“31. Power to amend Schedule C-The State
Government, after giving by notification not less than three
months’ notice of its intention so to do, may by
notification add to, or delete from, Schedule C any goods,
and thereupon Schedule C shall be deemed to be amended
accordingly.”
The words ‘three months’ in the above section were
substituted by ‘twenty days’ by Punjab Act No. 7 of 1967.
958
In exercise of the power conferred by the above
provision, the State Government issued the Notification on
the 15th January, 1968 adding paddy and rice as items (8)
and (9) in Schedule ‘C’. The result was that the turnover
relating to the purchase of paddy and rice became exigible
to payment of purchase tax under the Act in the hands of the
purchasers with effect from the 15th January, 1968.
Aggrieved by the said notification, the appellants who
became liable to payment of purchase tax on the turnover
relating to the purchases of Paddy made by them filed
petitions under Article 226 of the Constitution on the file
of the High Court of Punjab and Haryana questioning the
validity of section 31 of the Act, the Notification dated
the 15th January, 1968 issued thereunder and their liability
to payment of purchase tax.
The principal contentions urged by the appellants
before the High Court were (1) that section 31 of the Act
which authorised the State Government to amend Schedule ‘C’
to the Act by adding certain items making the turnover
relating to their purchases liable to tax was void on the
ground that it suffered from the vice of excessive
delegation of legislative power and therefore the
notification issued thereunder was also void and (2) that
the appellants who were carrying on the business of
manufacturers of rice could not be denied the benefit of
section 5(2) (a) (ii) of the Act which authorised the
deduction from the gross turnover the turnover relating to
the sales of paddy effected in their favour notwithstanding
the inclusion of paddy in Schedule ‘C’ to the Act. The High
Court rejected both the contentions of the appellants and
dismissed the writ petitions. Hence these appeals under
Article 136 of the Constitution.
In this Court also, the very same contentions which
were urged before the High Court were urged in support of
the appeals with some slight variations. The first
contention urged by Mr. M. C. Bhandare, learned counsel for
the appellants was that section 31 of the Act which
authorised the State Government to vary Schedule ‘C’ to the
Act by adding certain goods whose turnover was not liable to
payment of sales tax before suffered from the vice of
excessive delegation of legislative power and in the
alternative he submitted that even if the said provision was
otherwise valid, it could not be interpreted as including
within its scope the power to issue a notification which
would run counter to the express legislative policy of the
Act contained in section 5(2) (a) (ii) thereof which had
been enacted with the avowed purpose of giving assistance to
manufacturing industries.
959
A review of the decisions of this Court to some of
which we will presently refer shows that the delegation of
power by the legislature to a local authority or to the
Executive Government to vary or modify an existing law would
not be unconstitutional so long as such delegation does not
involve the abdication of essential legislative power by the
legislature. Such delegations of legislative power have been
upheld by this Court on several varied and diverse grounds
such as the scheme and policy of the statute under which the
power is delegated, the presence of guidelines in the
statute regarding the exercise of delegated power, the lack
of time for the Legislature to make provision with regard to
all the details involved in the administration of the law,
the incapacity of the Legislature to foresee all future
events, the nature of the subject matter of legislation and
the nature of the donee of power etc. Even in matters
relating to taxation law, it has been consistently held that
the Legislature can delegate the power to fix rates of tax
provided there are necessary guidelines regarding such
fixation on the ground that in a modern society, taxation is
one of the methods by which economic and social goals of the
State can be achieved and the power to tax, therefore,
should be a flexible power and capable of being easily
altered to meet the exigencies of circumstances. Such
delegation has been held to be not amounting to delegation
of essential legislative function.
In Powell v. Appollo Candle Company Limited(1) the
Judicial Committee of the Privy Council was called upon to
decide whether section 133 of the Customs Regulation Act of
1879 of New South Wales which conferred the power on the
Governor to impose tax on certain articles of import was an
unconstitutional delegation of legislative powers. In
holding that it was not unconstitutional, the Privy Council
observed:
“It is argued that the tax in question has been
imposed by the Governor and not by the Legislature who alone
had power to impose it. But the duties levied under the
Order-in-Council are really levied by the authority of the
Act under which the Order is issued. The Legislature has not
parted with its perfect control over the Governor, and has
the power, of course, at any moment, of withdrawing or
altering the power which they have entrusted to him. In
these circumstances, their Lordships are of opinion that the
judgment of the Supreme Court was wrong in declar-
960
ing Section 133 of the Customs Regulation Act of 1879
to be beyond the power of the Legislature.”
In J. W. Hampton Jr. & Company v. United States(1) the
validity of the action of the President to make changes in
the rates provided in the Tariff Act, 1922 under the power
delegated by the Congress arose for consideration. That was
challenged as a forbidden delegation of legislative power to
executive authority. The challenge was negatived by the
Supreme Court of the United States on the ground that the
Congress had laid down by legislative act an intelligible
principle to which the person authorised to fix the rate of
customs duties on imported merchandise was to conform.
The principle enunciated in the above two decisions has
been substantially adopted and followed by this Court in two
cases-(1) Pandit Banarsi Das Bhanot v. The State of Madhya
Pradesh & Ors. (2) and (2) Municipal Corporation of Delhi v.
Birla Cotton, Spinning and Weaving Mills, Delhi & Anr.(3) to
which we shall refer hereafter.
In Rajnarain Singh v. The Chairman, Patna
Administration Committee, Patna and Another(4) where an
earnest attempt was made to analyse and explain the judgment
of this Court in re. The Delhi Laws Act, 1912(5). Bose, J.
after referring in detail to the observations made by the
learned Judges in the latter case observed at page 301:-
“In our opinion, the majority view was that an
executive authority can be authorised to modify either
existing or future laws but not in any essential feature.
Exactly what constitutes an essential feature cannot be
enunciated in general terms, and there was some divergence
of view about this in the former case, but this much is
clear from the opinions set out above: it cannot include a
change of policy.”
In Pandit Banarsi Das Bhanot v. The State of Madhya
Pradesh & Ors. (supra) where this Court was called upon to
decide whether section 6(2) of the C.P. and Berar Sales Tax
Act, 1947 which authorised the State Government after giving
by notification not less than one month’s notice of its
intention so to do by a notification
961
after the expiry of the period of notice mentioned in the
first notification to amend Schedule II to that Act was
constitutional, it was held that it was not unconstitutional
for the Legislature to leave it to the executive to
determine details relating to the working of the taxation
laws, such as the selection of persons on whom the tax was
to be laid, the rates at which it was to be charged in
respect of different classes of goods and the like and that
the power conferred on the State Government by section 6(2)
of that Act to amend the Schedule relating to exemption was
in consonance with the accepted legislative practice
relating to the topic. In that connection at page 435, this
Court observed:
“Now, the authorities are clear that it is not
unconstitutional for the legislature to leave it to the
executive to determine details relating to the working of
taxation laws, such as the selection of persons on whom the
tax is to be laid, the rates at which it is to be charged in
respect of different classes of goods, and the like.”
The next case to which reference may be made is
Corporation of Calcutta & Anr. v. The Liberty Cinema(1)
where the majority upheld the fixaion of a tax on cinema
shows by the Corporation of Calcutta even though the
Calcutta Municipal Act of 1951 prescribed no limits to which
the tax could go. In that case, reliance was placed on the
case of Pandit Banarsi Das Bhanot v. The State of Madhya
Pradesh & Ors. (supra) and it was held that the fixation of
rate of tax could be left to a non-legislative body provided
the Legislature gave necessary guidance for such fixation.
This Court in that case found guidance in the various
provisions of the statute including the fact that the body
which had been authorised to levy the rate was a municipal
body whose fiscal requirements were restricted by the nature
and area of its jurisdiction.
In Municipal Corporation of Delhi v. Birla Cotton,
Spinning and Weaving Mills, Delhi & Anr. (supra)
Hidayatullah, J. (as he then was) upholding the imposition
of a tax by the Delhi Municipal Corporation in exercise of
the power granted to it under the Delhi Municipal
Corporation Act 66 of 1957 observed at page 287 as follows:-
“The doctrine that Parliament cannot delegate its
powers, therefore, must be understood in a limited way. It
only means that the legislature must not efface itself but
962
must give the legislative sanction to the imposition of
the tax and must keep the control in its own hands. There is
no specific provision in the Constitution which says that
the Parliament cannot delegate to certain specified
instrumentalities the power to effectuate its own will. The
question always is whether the legislative will has been
exercised or not. Once it is established that the
legislature itself has willed that a particular thing be
done and has merely left the execution of it to a chosen
instrumentality (provided that it has not parted with its
control) there can be no question of excessive delegation.
If the delegate acts contrary to the wishes of the
legislature the legislature can undo what the delegate has
done.”
In Devi Das Gopal Krishnan & Ors. v. State of Punjab &
Ors.(1) the validity of section 5 of the Act (as originally
enacted) which conferred on the Government power to levy tax
at such rates as the Government might fix arose for
consideration. This Court held that such conferment of power
on the Government to levy tax at the rates determined by it
without any statutory limitation or guidance was void. This
Court, however, held that after section 5 was amended by
Punjab Act No. 19 of 1952 by imposing the restriction that
the rates determined by the State Government should not
exceed two paise in a rupee was valid as the Legislature had
delegated the power to the Government to determine the rates
subject to the restriction mentioned above. In the course of
the above decision, Subba Rao, C.J., dealing with the
decision of this Court in Corporation of Calcutta v. Liberty
Cinema (supra) observed:
“If this decision is an authority for the position
that the Legislature can delegate its power to a statutory
authority to levy taxes and fix the rates in regard thereto,
it is equally an authority for the position that the said
statute to be valid must give a guidance to the said
authority for fixing the said rates and that guidance cannot
be judged by stereotyped rules but would depend upon the
provisions of a particular Act. To that extent this judgment
is binding on us. But we cannot go further and hold, as the
learned counsel for the respondents asked us to do, that
whenever a statute defines the purpose or purposes for which
a statutory authority is constituted and empowers it to levy
a tax a that statute necessarily contains a guidance to fix
the rates: it depends upon the provisions of each statute.”
963
In Sita Ram Bishambher Dayal & Ors. v. State of U.P. &
Ors.(1) the validity of section 3D(1) of the U.P. Sales Tax
Act, 1948 which authorised the levy of a tax on the turnover
of first purchases made by a dealer or through a dealer
acting as a purchasing agent in respect of such goods or
class of goods, and at such rates, not exceeding two paise
per rupee in the case of foodgrains, including cereals and
pulses, and five paise per rupee in the case of other goods
and with effect from such date, as may, from time to time,
be notified by the State Government in that behalf was
questioned on the ground that the delegation of power to the
State Government to determine the goods or class of goods
whose purchase turnover would be liable to tax and the rates
of purchase tax subject to the restriction imposed in that
regard by that section suffered from the vice of excessive
delegation. Repelling the above contention and upholding the
said provision, Hegde, J. speaking for the Court observed
thus:-
“It is true that the power to fix the rate of a
tax is a legislative power but if the legislature lays down
the legislative policy and provides the necessary
guidelines, that power can be delegated to the executive.
Though a tax is levied primarily for the purpose of
gathering revenue, in selecting the objects to be taxed and
in determining the rate of tax, various economic and social
aspects, such as the availability of the goods,
administrative convenience, the extent of evasion, the
impact of tax levied on the various sections of the society
etc. have to be considered. In a modern society taxation is
an instrument of planning. It can be used to achieve the
economic and social goals of the State. For that reason the
power to tax must be a fexible power. It must be capable of
being modulated to meet the exigencies of the situation. In
a Cabinet form of Government, the executive is expected to
refect the views of the legislatures. In fact in most
matters it gives the lead to the legislature. However, much
one might deplore the “New Despotism” of the executive, the
very complexity of the modern society and the demand it
makes on its Government have set in motion forces which have
made it absolutely necessary for the legislatures to entrust
more and more powers to the executive. Textbook doctrines
evolved in the 19th Century have become out of date. Present
position as regards delegation of legislative power
964
may not be ideal, but in the absence of any better
alternative, there is no escape from it. The legislatures
have neither the time, nor the required detailed information
nor even the mobility to deal in detail with the innumerable
problems arising time and again. In certain matters they can
only lay down the policy and guidelines in as clear a manner
as possible.”
When the validity of section 3-D of U.P. Sales Tax Act,
1948 was again challenged before this Court in Hira Lal
Rattan Lal etc. etc., v. State of U.P. & Anr. etc., etc.(1)
on the very same ground, it was again upheld by this Court
with the following observations:-
“The only remaining contention is that the
delegation made to the executive under s. 3-D is an
excessive delegation. It is true that the legislature cannot
delegate its legislative functions to any other body. But
subject to that qualification, it is permissible for the
legislature to delegate the power to select the persons on
whom the tax is to be levied or the goods or the
transactions on which the tax is to be levied. In the Act,
under s. 3 the legislature has sought to impose multi-point
tax on all sales and purchases. After having done that it
has given power to the executive, a high authority and which
is presumed to command the majority support in the
legislature, to select for special treatment dealings in
certain class of goods. In the very nature of things, it is
impossible for the legislature to enumerate goods, dealings
in which Sales tax or purchase tax should be imposed. It is
also impossible for the legislature to select the goods
which should be subjected to a single point sales or
purchase tax. Before making such selections several aspects
such as the impact of the levy on the society, economic
consequences and the administrative convenience will have to
be considered. These factors may change from time to time.
Hence in the very nature of things, these details have got
to be left to the executive.”
We shall now proceed to examine the validity of section
31 of the Act in the light of the decisions referred to
above. The expression ‘dealer’ is defined in section 2(d) of
the Act as “any person including a Department of Government
who in the normal course of trade sells or purchases any
goods, in the State of Punjab.” Section 2(ff) of the
965
Act defines the expression ‘purchase’ as “acquisition of
goods specified in Schedule ‘C’ for cash or deferred
payment.” The word ‘sale’ is defined in section 2(h) of the
Act as meaning “any transfer of property in goods other than
goods specified in Schedule ‘C’ for cash or deferred
payment.” Sub-section (1) of section 4 of the Act which is
the charging section provides that “subject to the
provisions of sections 5 and 6, every dealer (except one
dealing exclusively in goods declared tax-free under section
(6) whose gross turnover during the year immediately
preceding the commencement of the Act exceeded the taxable
quantum shall be liable to pay tax under the Act on all
sales effected after the coming into force of the Act and
purchases made after the commencement of East Punjab General
Sales Tax (Amendment) Act, 1958.” Section 5(1) of the Act
authorises the State Government to determine the rates of
tax payable on the taxable turnover of a dealer not
exceeding the limit prescribed therein. Subsection (2) of
section 5 of the Act lays down the principles governing the
determination of “taxable turnover”. During the relevant
period, sub-section (2) of section 5 of the Act read as
follows :-
“5. (2) In this Act the expression “taxable
turnover” means that part of a dealer’s gross turnover
during any period which remains after deducting therefrom-
(a) his turnover during that period on-
(i) the sale of goods declared tax-free
under section 6;(ii) sales to a registered dealer of goods
other than sales of goods liable to tax at the first stage
under sub-section (1-A); declared by him in a prescribed
form as being intended for resale in the State of Punjab or
sale in the course of inter-State trade or commerce or sale
in the course of export of goods out of the territory of
India, or of goods specified in his certificate of
registration or use by him in the manufacture in Punjab of
any goods, other than goods declared tax-free under section
6, for sale in Punjab and on sales to a registered dealer of
containers or other materials for the packing of such goods:Provided that in case of such sales, a
declaration duly filled up and signed by the registered
dealer
966
to whom the goods are sold and
containing prescribed particulars on a prescribed form
obtained from the prescribed authority is furnished by the
dealer who sells the goods:(ii) .. .. .. .. .. ..
(iii).. .. .. .. .. ..
(iv) sales to any undertaking supplying
electrical energy to the public under a licence or sanction
granted or deemed to have been granted under the Indian
Electricity Act, 1910, of goods for use by it in the
generation or distribution of such energy;
(v) sales or purchases of goods falling
under section 29;
(vi) the purchase of goods which are sold not
later than six monts after the close of the year, to a
registered dealer, or in the course of inter State trade or
commerce, or in the course of export out of the territory of
India;
Provided that in the case of such a sale to a
registered dealer, a declaration, in the prescribed form and
duly filled up and signed by the registered dealer to whom
the goods are soid, is furnished by the dealer claiming
deduction.
(vii)Such other sales or purchases as may be
prescribed;
(b) the amount of sales tax included in the gross
turnover.”
Section 6 of the Act during the relevant period read as
substituted by Punjab Act No. 24 of 1959 with the
modification made by Punjab Act No. 7 of 1967 which
substituted the words “twenty days” in the place of “three
months” in sub-section (2) thereof.
Schedule ‘A’ to the Act specified certain goods which
were considered as luxury goods for purposes of levy of tax
at the rates prescribed by the State Government under the
first proviso to section 5(1), Schedule ‘B’ to the Act
referred to the items of goods which were treated as tax-
free goods under section 6 and Schedule ‘C’ during the
relevant period referred to the goods the turnover of which
was subject to purchase tax. The State Government was
however, given power to amend all the three Schedules.
967
It is seen from the provisions of the Act referred to
above that the Legislature while directing that the tax
shall be levied on the turnover of sales and purchases of
goods under section 4 left the rates of tax payable to be
determined by the State Government under section 5(1) of the
Act subject to the limits prescribed therein. The
Legislature after specifying the goods which should be
treated as luxury goods, tax-free goods and goods whose
purchase turnover is liable to tax in Schedule ‘A’, Schedule
‘B’ and Schcdule ‘C’ respectively has delegated the power to
the State Government to amend Schedule ‘A’ under the first
proviso to sub-section (1) of section 5, Schedule ‘B’ under
sub-section (2) of section 6 and Schedule ‘C’ under section
31 of the Act. In each of these cases, the State Government
can make the amendment only after giving previous publicity
to its intention to do so thus giving an opportunity to
interested parties to make representations, if any. In the
case of a democratic Government, this itself acts as a check
on arbitrary exercise of power. At this stage it is
necessary to refer to sub-section (2A) of section 4 of the
Act and that provides that notwithstanding anything
contained in sub-sections (1) and (2) of section 4, no tax
on the sale of any goods shall be levied if a tax on their
purchase is payable under the Act. The Act also contains the
machinery for assessment and collection of tax. It follows
from the scheme of the Act that no tax is payable on the
sale of goods specified in the first column of Schedule ‘B’
subject to the conditions and exceptions, if any, set out in
the corresponding entry in the second column, thereof and no
dealer shall charge sales tax on the sale of goods which are
declared tax-free. In so far as goods included in Schedule
‘C’ to the Act are concerned, tax can be levied only on
their purchase turnover. In the case of all other goods, tax
is levied on their sales turnover subject to section 5 and
other provisions of the Act. When the State Government in
exercise of its power under section 6(2) of the Act deletes
any goods from Schedule ‘B’, they cease to be tax-free goods
and their sales turnover would become liable to payment of
tax. When the State Government in exercise of its power
under section 31 of the Act includes any goods in Schedule
‘C’, their sales turnover would become exempt from payment
of tax but their purchase turnover would become liable for
payment of tax. We are of the view that the delegation of
power to the State Government to determine whether any class
of goods should be included or excluded from Schedule ‘C’ to
the Act cannot be considered as unconstitutional in view of
the decisions of this Court referred to above and in
particular the decision in Pandit Banarsi Das Bhanot v. The
State of Madhya Pradesh & Ors. (supra) where section 6(2) of
the Central Provinces and Berar Sales Tax Act, 1947 corres-
968
ponding to section 6(2) of the Act was upheld by a
Constitution Bench of this Court. The Constitution Bench
while rejecting the challenge of section 6(2) observed
thus:-
“The contention of the appellant that the
notification in question is ultra vires must, in our
opinion, fail on another ground. The basic assumption on
which the argument of the appellant proceeds is that the
power to amend the Schedule conferred on the Government
under s. 6(2) is wholly independent of the grant of
exemption under s. 6(1) of the Act, and that in consequence,
while an exemption under s. 6(1) would stand, an amendment
thereof by a notification under s. 6(2) might be bad. But
that, in our opinion, is not the correct interpretation of
the section. The two sub-sections together form integral
parts of a single enactment, the object of which is to grant
exemption from taxation in respect of such goods and to such
extent as may from time to time be determined by the State
Government. Section 6(1), therefore, cannot have an
operation independent of s. 6(2), and an exemption granted
thereunder is conditional and subject to any modification
that might be issued under s. 6(2). In this view, the
impugned notification is intra vires and not open to
challenge.”
We are of the view that the case in so far as section
31 of the Act which is also an integral part of a single
enactment and which authorises the State Government to amend
Schedule ‘C’ to the Act cannot be different from the case
which was dealt with by the Constitution Bench. If it is
permissible for the Legislature to authorise the State
Government to convert tax free goods into taxable ones,
there is hardly any justification for holding that the State
Government cannot be entrusted with the power to include
goods in Schedule ‘C’ making their purchase turnover
taxable.
It was, however, argued by Mr. M. C. Bhandare that in
the instant case, the inclusion of paddy in Schedule ‘C’ to
the Act was against the policy underlying the Act and,
therefore, even though section 31 of the Act might be
constitutionally valid, the notification issued by the State
Government directing inclusion of paddy in Schedule ‘C’
should be held to be outside the scope of section 31 of the
Act. In other words, he contended that having regard to the
scheme of the Act, it was necessary for us to read section
31 of the Act as not delegating the power to the State
Government to include paddy in Schedule ‘C’ to the Act. The
argument of the learned counsel was that the appellants were
purchasing paddy either from agricul-
969
turists who had grown it on their land or from katcha
adatias for purposes of manufacture of rice in the
circumstances mentioned in section 5(2) (a) (ii) of the Act.
In either case no sales tax was being levied on the turnover
relating to the sales in their favour by reason of item 39
of Schedule ‘B’ to the Act which declared that agricultural
or horticultural produce sold by a person or a member of his
family grown by himself or grown on any land in which he has
an interest whether as owner or usufructuary mortgage tenant
or otherwise were tax free goods or of sub-clause (ii) of
clause (a) of sub-section (2) of section 5 of the Act which
required the turnover relating to sales to a registered
dealer of goods specified in his certificate of registration
for use by him in the manufacture in Punjab of any goods
other than goods declared tax-free under section 6 for sale
in Punjab to be deducted from the gross turnover of any
dealer in order to arrive at ‘taxable turnover’. It was
argued that the tax payable under the Act was an indirect
tax and since no sales tax was leviable, the appellants
could purchase paddy before the issue of the impugned
notification without being saddled with the liability of
payment of sales tax. The policy underlying section
5(2)(a)(ii) of the Act was that manufacturers of goods
specified in the certificate of registration obtained by
them should be able to acquire raw material for their
industry without incurring the extra liability of sales tax.
This exemption which the appellants were enjoying was taken
away indirectly by the State Government by including paddy
in Schedule ‘C’ to the Act resulting in the imposition of
purchase tax in respect of its turnover on them. Relying
upon the decision of the High Court of Madras in Syed
Mohamed & Co. v. The State of Madras(1) it was argued that
sales tax was in effect tax on the transaction of sale of
goods by one person to another and that it was unreasonable
to assume that the Legislature contemplated different
categories of transactions depending upon the point at which
the tax was levied. In support of this contention, our
attention was also drawn to the observation made at page 571
in Devi Das Gopal Krishnan & Ors. v. State of Punjab & Ors.
(supra) and in State of Assam v. Ramesh Chandra Dey &
Ors.(2). The learned counsel for the appellants contended
that since the exemption from payment of sales tax accorded
by the Legislature under item 39 of Schedule ‘B’ and under
section 5(2) (a) (ii) of the Act was in respect of the
transaction of sale, it was not open to the Executive
Government to take away the exemption by including paddy in
Schedule ‘C’ and since such inclusion was contrary to the
express policy of the statute, section 31 of the Act must be
so interpreted as not delegating the power to
970
include paddy purchased by the appellants in Schedule ‘C’.
We are, therefore asked to hold that even though section 31
was not unconstitutional, the notification was not
enforceable against the appellants. The above argument is no
doubt quite attractive but we do not find any substance in
it since it overlooks the decision of the Constitution Bench
of this Court in Pandit Banarasi Das Bhanot v. The State of
Madhya Pradesh & Ors. (supra) where it has been held that it
is open to the Legislature to delegate the power to withdraw
the exemption which has been given by the Legislature in
respect of certain transactions specified in Schedule II to
the C.P. and Berar Sales Tax Act, 1947. Moreover it cannot
be said that the principal object of the Act is to encourage
manufacturing industry. The Act is a fiscal legislation and
its object is to collect revenue for the purpose of meeting
the expenditure of the Government. It is no doubt true that
while levying tax under the Act, the Legislature may grant
exemptions in certain cases and may decline to grant
exemptions in other cases. The question whether such
exemption should be given or not is only incidental or
ancillary to the principal object viz. the object of levying
tax for the purpose of collecting revenue. It cannot also be
said that when certain goods are sold in favour of
manufacturer, the seller is always entitled to deduct such
sales turnover from the gross turnover. He can do so only
when such goods are specified in the certificate of
registration obtained by the purchaser and they are used by
him in the manufacture in Punjab of any goods other than
goods declared tax-free under section 6 of the Act for sale
in Punjab. Transaction in paddy cannot, therefore, be
considered as having been generally exempted from payment of
tax under the Act. It is also to be seen that section
5(2)(a)(ii) of the Act grants exemption from payment of
sales tax on the turnover of goods sold in favour of a
manufacturer under the circumstances mentioned therein only
to the seller and not to the buyer even though indirectly
the buyer may be benefited thereby. If the observation made
by this Court in State of Tamil Nadu v. M. K. Kandaswami
etc., etc.(1) that ‘taxable goods’, ‘taxable event’ and
‘taxable person’ are three distinct concepts is borne in
mind, there will be no room for any confusion. In the
instant case, the taxable event is the purchase of paddy and
not its sale which alone attracts section 5(2) (a) (ii) of
the Act and taxble person, that is person liable to pay tax,
is the purchaser and not the seller. The appellants cannot,
therefore, complain that any exemption granted to them by
the Act has been taken away. Even though the liability to
pay purchase tax may be on appellants, it is bound to have
repercussions on the price at which they buy paddy and
971
the price at which rice manufactured by them out of that
paddy is sold by them. The tax payable under the Act
admittedly being an indirect tax the tax burden would
ordinarily fall on the consumer of rice and not on any of
the intermediaries including the appellants. The impugned
notification cannot, therefore, be treated as one issued
against the policy of the statute.
In view of the foregoing, we hold that section 31 of
the Act and the Notification issued thereunder do not suffer
from the vice of excessive delegation of legislative power.
We may at this stage refer to one other subsidiary
argument urged on behalf of the appellants. It is argued
that because paddy and rice are not different kinds of goods
but one and the same, inclusion of both paddy and rice in
Schedule ‘C’ to the Act would amount to imposition of double
taxation under the Act. There is no merit in this contention
also because the assumption that paddy and rice are one and
the same is erroneous. In Ganesh Trading Co., Karnal v.
State of Haryana & Anr. arising under the Act, this Court
has held that although rice is produced out of paddy, it is
not true to say that paddy continued to be paddy even after
dehusking; that rice and paddy are two different things in
ordinary parlance and therefore, when paddy is dehusked and
rice produced, there is a change in the identity of the
goods. The above decision follows the principle enunciated
by this Court in State of Punjab v. Chandu Lal Kishori Lal
in which it was held that cotton seeds when separated from
cotton constituted distinct commercial goods different from
cotton. The above contention has, therefore, to be rejected.
In the result these appeals fail and they are
dismissed. The parties shall, however, bear their own costs.
N.K.A. Appeals dismissed.
972