PETITIONER:
STATE OF KARNATAKA & ANR.
Vs.
RESPONDENT:
M/S. HANSA CORPORATION
DATE OF JUDGMENT25/09/1980
BENCH:
DESAI, D.A.
BENCH:
DESAI, D.A.
CHANDRACHUD, Y.V. ((CJ)
CITATION:
1981 AIR 463 1981 SCR (1) 823
1980 SCC (4) 697
CITATOR INFO :
E&R 1985 SC 621 (3,5,6,8,9,11,14,17,18,21)
R 1987 SC 558 (15)
F 1988 SC1353 (17)
ACT:
Karnataka Tax on Entry of Goods into Local Areas for
Consumption. Use or Sale therein Act, 1979-Section 3-
Validity of-Power of State Government to levy tax on select
goods entering some local areas-state if bound to impose tax
on all goods entering any local area.
HEADNOTE:
The Karnataka Tax on Entry of Goods Into Local Areas
for Consumption, Use or Sale therein Act 1979 was enacted by
the State Legislature to levy tax on certain select goods at
the time of their entry into a local area. This tax was
devised to off set the short fall in the funds of municipal
and other local bodies by reason of the abolition of octroi
which by experience was found to impede the development of
trade and commerce.
Section 3 of the impugned Act provides that the tax
shall be levied on entry of the scheduled goods into a local
area for consumption, use or sale therein at such rate as
may be specified by the State Government and different rates
may be specified for different local areas.
By a notification issued under section 3 of the Act the
State Government specified 27 local areas in the State which
could levy the tax on scheduled goods and specified the rate
of tax for each such local area therein. The Scheduled goods
are all varieties of textile; tobacco, sugar and the like.
Upholding the two principal contentions, among others,
raised by the appellants in their writ petitions before the
High Court that (i) section 3 does not empower the State
Government to apply the provisions of the Act to such local
areas only and to exclude other local areas and (ii) the
levy of tax on all dealers irrespective of the value of
scheduled goods brought by them into a local area without
exempting petty dealers imposes an unreasonable restriction
on the right to carry articles, the High Court struck down
the Act as invalid.
Allowing the appeal
^
HELD: The express power of choosing and specifying
different rates subject to maximum for different local areas
is conferred on the State Government not by the expression
'such rate' but by the expression 'rates' with the
adjectival clause 'different rates may be specified for
different local areas'. It was, therefore, not necessary to
qualify the expression 'such rate' again by the expression
'as may be specified by the State Government' because that
824
is covered by the express power conferred by the expression
'different rates may be specified for different local
areas'. The use of article 'a' before 'local area' signifies
not every local area but any local area. [831C-D]
In re. Sanders; ex parte Serqueant, Law Journal (1885)
54 Q.B. 331, The Queen v. Justices of Durham, [1895] 1 Q.B.
801, Coast Brick & Tile Works Ltd. & Ors. v. Prem Chand
Raichand & Anr. [1967] 1 Appeal Cases 192 referred to.
Although, the taxing event is entry of scheduled goods
in a local area, section 3 empowers the State Government to
specify different rates of tax in respect of different
scheduled goods for different local areas. A local area
means an area in a city governed by the Karnataka
Municipalities Act or a municipal corporation governed by
the Karnataka Municipal Corporation Act. The local areas
vary immensely both in dimension, population, industrial
growth, and the scale and kind of municipal services
rendered by them. If the argument that 'a local area' should
be interpreted to mean 'every local area' is accepted it
would be obligatory on the State Government to levy tax on
entry of scheduled goods in every local area. It would be
unjust and inequitable to levy tax on entry of goods at the
same rates for a big municipal corporation and a small
municipal area, each of which does not stand comparison with
the other. The choice to select local areas is a necessary
concomitant of a choice to select the rates which is a power
conferred on the State Government. The purpose underlying
the statute, namely, to provide financial assistance to the
municipalities would be better effectuated if the tax
realised considerably outweighs the administrative cost in
collection. The High Court fell into an error because it
adopted a literal, grammatical construction and overlooked
the underlying object of the Act and the historical
background in levying the tax. [831C-G; 832C-E]
There is no force in the contention that if the State
Government is granted a choice in the matter of selection of
local areas ipso facto the statute would be unconstitutional
as being violative of Article 14. It is a well accepted
principle of constitutional law that there is always a
presumption of constitutionality of a statute. In the matter
of taxing statutes the legislature which is competent to
levy a tax, has full freedom to determine the articles, the
manner and the rate of tax. [832G-H; 834E]
Khyerbari Tea Co. Ltd. & Anr. v. The State of Assam
[1964] 5 S.C.R. 975 and East India Tobacco Co. v. State of
Andhra Pradesh [1963] 1 S.C.R. 404, 409 referred to.
The High Court was wrong in its view that section 3 did
not permit the State Government to pick and choose the local
areas for the levy of tax. In selecting the local areas and
the rates of tax to be levied on different scheduled goods
the State has adopted the criterion of population of a local
area which undeniably is a reasonable criterion because the
yield of the tax would be directly proportionate to the
consumption of the goods in the local areas and the
consumption of goods is directly related to the population
within the local area. [835F-G]
Non-exemption of petty dealers from the operation of
the Act does not lead to the conclusion that the impugned
legislation constituted an unreasonable restriction on the
fundamental right of the petty dealers to carry on their
trade or business. If petty dealers were to be exempt, the
criterion of turnover in the scheduled goods for classifying
the petty dealers will have to be kept high in which event
the big registered dealers could conveniently bring the
scheduled goods into local areas in the name of petty
dealers. The taxing
825
event being entry of scheduled goods in a local area at the
instance of a dealer, the volume or quantum of business of
the dealer is not at all relevant. Unlike under the old
system of octroi where every importer was taxed, under the
Act only a dealer, dealing in scheduled goods is required to
pay the tax. [838B-C]
If a State tax law accords identical treatment in the
matter of levy and collection of taxes on the goods
manufactured within the State and identical goods imported
from outside the State, Art. 304(a) would be complied with.
There is an underlying assumption in Article 304(a) that
such a tax when levied within the constraints of Article
304(a) would not be violative of Article 301 and the State
Legislature has the power to levy such tax. [841E]
In the instant case the tax is non-discriminatory in
that it does not discriminate between scheduled goods
manufactured within the State and those imported from
outside the State. A minor discrimination between two types
of goods if any is hardly relevant for the purposes of
Article 304(a). Therefore, the impugned tax satisfies the
requirements of Article 304(a). [841F-G]
There is no evidence to show that the burden of tax
would be so heavy as to constitute an unreasonable
restriction on the freedom of trade and commerce. Although,
in theory the tax leviable is not a single point tax and
becomes leviable at every point whenever the goods are taken
from one local area to another and then on to yet another no
attempt was made to substantiate how the goods are so
successively moved because if they are taken for consumption
or use in one place, there is no question of taking them
from that local area to another local area and so on. [842D-
G]
Even if the tax, to some extent, imposes an economic
impediment to the activity taxed that by itself is not
sufficient to stigmatise the levy as unreasonable or not in
public interest. What is sought to be done is to impose a
modest levy on certain goods at the time of their entry into
a local area by removing the obnoxious features of octroi.
The tax is not intended to augment the finance of the local
bodies but to compensate them for loss suffered by the
abolition of the octroi. [844A-B]
The requirements of the proviso to Article 304(b) are
satisfied because the President accorded sanction to the
impugned Act. [844F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3094 of
1979.
Appeal by Special Leave from the Judgment and Order
dated 24-8-1979 of the Karnataka High Court in W.P. No.
7039/79.
L. N. Sinha, Attorney General of India and N. Nettar
for the Appellant.
S. T. Desai, N. Srinivasan, M. Mudgal and Vineet Kumar
for the Respondent.
The Judgment of the Court was delivered by
Desai, J.-Constitutional validity of Karnataka Tax on
Entry of Goods Into Local Areas for Consumption, Use or Sale
Therein Act, 1979 (‘Act’ for short), and the Notification
No. FD 66
826
CSL 79 dated May 31, 1979, issued by the State Government in
exercise of the powers conferred by section 3 of the Act is
involved in this appeal by special leave at the instance of
the State of Karnataka and one other.
Karnataka State enacted the Act to provide for the levy
of tax on entry of goods into local areas for consumption,
use or sale therein, being Karnataka Act No. 27 of 1979.
Section 3 empowers the State Government to levy and collect
tax on entry of scheduled goods into a local area for
consumption, use or sale therein at such rate not exceeding
2% ad valorem, as may be specified by the State Government.
Armed with the power conferred by s. 3, the State Government
issued notification-1 No. FD 66 CSL 79 dated May 31, 1979,
specifying the local areas and the rates of tax at which the
tax shall be levied and collected under the Act on the entry
of scheduled goods mentioned in col. 2 of the table appended
to the notification into local areas specified in the
corresponding entries. Goods liable to levy of tax under the
Act on entry in the specified local areas at the specified
rates are those set out in the schedule annexed to the Act.
They are (i) all varieties of textiles, viz., cotton,
woollen, silk or artificial silk including rayon or nylon
whether manufactured in mills, powerlooms or handlooms and
hosiery cloth in lengths; (ii) tobacco and all its products;
(iii) sugar other than sugar candy confectionery and the
like. In all 27 local areas were specified for the purpose
of levy of tax on entry of scheduled goods in the respective
local areas at varying rates specified in the notification.
The Act received the assent of the President on May 17,
1979, and it was published in the State Government Gazette
on June 1, 1979, and came into force from that very day.
Numerous petitions were filed under Article 226 of the
Constitution in the High Court of Karnataka contending that
the Act and the Notification issued thereunder were
unconstitutional on diverse grounds. As many as 24 different
contentions were canvassed before the High Court. Of them
two, viz., contention nos. 13 and 19 found favour with the
High Court with the result that the Act and the Notification
issued thereunder were declared unconstitutional and a
mandamus was issued directing the State Government and its
officers to forebear from enforcing the provisions of the
Act against the petitioners before the High Court.
The contentions which found favour with the High Court,
are: (i) section 3 of the Act does not empower the State
Government to apply the provisions of the Act to certain
local areas only and to exclude other local areas; (ii) as
the Act imposes the tax on dealers
827
irrespective of the value of scheduled goods brought by them
into a local area and does not exempt petty dealers, the Act
imposes unreasonable restrictions on petty dealers. The
remaining 22 contentions were rejected some of which were
canvassed before us on behalf of the respondents to sustain
the decision of the High Court.
It is necessary at this stage to notice the broad
features of the Act. The long title and the preamble of the
Act demonstrate the purpose for which the Act was enacted,
it being to empower the State Government to levy tax on
entry of goods specified in the schedule (‘scheduled goods’
for short) in local areas to be specified by the State
Government in this behalf. Section 2, the dictionary clause
of the Act, defines ‘dealer’ in the Act to have the same
meaning assigned to it in clause (k) of s. 2 of the
Karnataka Sales Tax Act, 1957. Section 2, sub-section (5)
defines ‘local area’ as under:
“2(5). ‘Local area’ means the area within the
limits of a City under the Karnataka Municipal
Corporations Act, 1976 (Karnataka Act 14 of 1977), or a
municipality under the Karnataka Municipalities Act,
1964 (Karnataka Act 22 of 1964)”.
Section 2, sub-s. (7) defines ‘scheduled goods’ to mean
goods specified in the schedule to the Act. Section 3 is the
charging section. It reads as under:
“3. Levy of tax-There shall be levied and
collected a tax on entry of the scheduled goods into a
local area for consumption, use or sale therein at such
rate not exceeding two percent ad valorem as may be
specified by the State Government and different rates
may be specified for different local areas”.
Section 4 provides for registration of dealers and
makes it obligatory upon every dealer in scheduled goods to
get himself registered under the Act in the prescribed
manner. Rule 4, sub-rule (3) of the Karnataka Tax on Entry
of Goods into Local Areas for consumption, Use or Sale
therein Rules, 1979 (‘Rules’ for short), enacted under the
Act has prescribed a fee of Rs. 25/- for registration as a
dealer. Chapter III of the Act contains provisions for
return, assessment, payment, recovery and collection of tax.
Chapter IV prescribes taxing authorities. Chapter V deals
with appeals and revisions and Chapter VI contains
miscellaneous provisions. Schedule annexed to the Act sets
out the goods on the entry of which in the specified local
areas tax can be levied.
Entry 52 in State List read with Article 246 of the
Constitution confers power on the State legislature to enact
a law to levy tax
828
on the entry of goods into a local area for consumption, use
or sale therein. This tax in common parlance is known as
‘octroi’. Octroi was leviable by the municipality under the
power delegated to it under various laws providing for
setting up of and administration of municipal corporations
and municipalities. Octroi thus understood was being levied
by various municipalities and municipal corporations in
Karnataka State. Since some time a feeling had grown that
octroi was obnoxious in character and impeded the
development of trade and commerce and there was a clamour
for its abolition. Taking note of the resentment of the
business community, Karnataka State abolished octroi with
effect from April 1, 1979. However, no one was in doubt that
octroi was a major source of revenue to municipalities and
its abolition would cause such a dent on municipal finances
that compensation for the loss would be inevitable.
Accordingly, the State Government undertook a policy of
compensating the municipalities year by year. For generating
funds for this compensation, rates of sales tax were raised
and in some cases a surcharge was levied. The amount so
collected was not sufficient to bridge the gap in municipal
budget. To further augment the finances for compensating the
municipalities, additional fund was sought to be generated
by levy of tax under the impugned legislation. No doubt, the
tax levied was one on entry of scheduled goods in local
areas meaning thereby it had all the broad features of
octroi, yet the manner of levy, the method of collection and
the persons liable to pay the same were so devised by the
impugned Act as to remove the obnoxious features of octroi.
As the charging section shows, the tax was to be levied on
entry of scheduled goods in a local area at a rate to be
specified by the Government not exceeding 2% ad valorem. The
taxing event would be the entry of scheduled goods in a
local area. In fact, octroi was being levied on almost all
conceivable goods entering into a local area for
consumption, use or sale therein. There appears to be a
discernible policy in selecting the goods set out in the
schedule, the entry of which in a local area would provide
the taxing event. The goods selected for levy are textiles,
tobacco and sugar. Way back in 1957 there was a demand for
abolition of sales tax on the scheduled goods and at the
instance of the Union Government the State Governments
agreed to forego their right to levy sales tax on the
aforementioned scheduled goods on the condition that the
Union Government would levy additional excise duty on them
and distribute the net proceeds of such duty amongst the
consenting States. Parliament accordingly has enacted the
Additional Duties on Goods (Goods of Special Importance)
Act, 1957. Therefore, while raising rates of sales tax
829
and levying surcharge in respect of some other items the
State Government could not have levied sales tax on the
scheduled goods. They were, therefore, selected for the levy
of the tax under the impugned Act on their entry into a
local area.
Having noticed the historical background leading to the
enactment of the impugned legislation we may now examine the
two contentions which found favour with the High Court and
as a result of which the Act and the notification issued
thereunder were struck down by the High Court.
The respondents contend that upon a true construction
s. 3 permits the State Government only to specify different
rates of tax not exceeding the maximum prescribed in the
section to be levied on entry of scheduled goods into a
local area but the State Government has no power to pick and
choose local area. In other words, the respondents say that
the tax has to be levied on entry of scheduled goods in each
and every local area as the word is understood in the Act.
The submission is that the expression ‘as may be specified
by the State Government’ qualifies the expression ‘such
rates’ and not “local area” and this was sought to be
reinforced by saying that Article ‘a’ precedes local area
which would mean every local area and not any local area. It
was further stated that if what is contended on behalf of
the State is correct, one will have to read the word ‘and’
between the words ‘therein’ and ‘at such rate’ which might
imply on a grammatical construction that discretion was
conferred upon the State Government not only to specify rate
but also the local area.
Legislative drafting will reach its peak of glory when
perfection is attained in demonstrably manifesting the
legislative intent by unequivocal language. But it is
equally undeniable that language at its best is a very
imperfect vehicle of conveying the intent of the speaker.
Legislature speaks through legislation and tries its utmost
to convey what it intends to do by the legislation but even
best of draftsmen cannot claim to attain perfection. On a
very superficial view one may be tempted to accept the
construction canvassed for on behalf of the respondents but
when the section is read more minutely with necessary pause
and emphasis and the policy enacting the legislation is kept
in view and also the inconceivable situation that may arise
if the construction canvassed for or behalf of the
respondents is kept in focus, the contention will have to be
repelled.
There is a two-fold answer to the contention that upon
a literal grammatical construction of s. 3 the State has no
choice in the matter of selecting local areas and that
choice is limited to specifying rates
830
but after choosing rates all local areas will have to be
covered for the levy of tax. It is easy to read the section
with a pause and punctuation after the word ‘ad valorem’ so
that the expression ‘as may be specified by the State
Government’ would qualify both the expressions ‘local area’
and ‘such rate’. This would be clear from the fact that the
last expression in the section ‘different rates may be
specified for different local areas’ would be an adjectival
clause to the word ‘rate’ so that the power to choose and
specify different rates is not implicit in the words ‘such
rate’ but in the expression ‘different rates may be
specified for different local areas’. Thus an express power
of choosing and specifying different rates subject to
maximum for different local areas is conferred on the State
Government not by the expression ‘such rate’ but by the
expression ‘rates’ with the adjectival clause ‘different
rates may be specified for different local areas’. It was,
therefore, not necessary to qualify the expression ‘such
rate’ again by the expression ‘as may be specified by the
State Government’ because that is covered by the express
power conferred by the expression ‘different rates may be
specified for different local areas’. In approaching the
matter from this angle the expression ‘as may be specified
by the State Government’ would qualify the expression ‘local
area’ and this construction would be further reinforced by
use of Article ‘a’ prefixing ‘local area’ meaning thereby
not every local area but any local area. In this connection
reference may be made with advantage to In re. Sankers; ex
parte Sergeant, wherein the expression ‘under the hand of
the Judge of a county court’ came up for construction. The
construction canvassed for was that a county court would not
mean any county court but the country court having
jurisdiction in the matter. Repelling this construction the
Court, after ascertaining the object of the legislation,
held that a county court would mean any county court, an
approach dictated by strict grammatical construction.
Similarly, in The Queen v. Justices of Durham, the
expression ‘a Court’ was interpreted to mean any court and
in accepting this construction the Court was guided by the
bare letter of the statute which would be a proper guide
unless there would be something in it to modify the ordinary
meaning of the words used. The Privy Council in Coast Brick
& Tile Works Ltd. & Ors. v. Premchand Raichand & Anr.,
observed that the expression ‘the security’ should be read
as ‘a security’, a variation which in a poorly drawn section
does not do great violence to the language used. Even if,
therefore, a literal grammatical
831
construction were to be adopted, on a proper reading of the
section power is conferred on the State Government by s. 3
not only to specify different rates for different areas but
also to specify local areas entry into which of scheduled
goods would provide the taxing event. There is thus a power
to choose and specify local areas as well as choose and
specify rate of taxation subject to maximum prescribed in
the section.
Assuming our reading of the section is not correct,
there is another way of approaching the matter. It cannot be
gainsaid that the State Government is empowered to specify
the different rates of tax not exceeding the maximum in
respect of different scheduled goods for different local
areas. This implies that even though the taking event is
entry of scheduled goods in a local area, nonetheless
different rates may be prescribed for different local areas
and express power in that behalf is conferred on the
Government by providing in section 3 that different rates
may be specified for different local areas. If at this stage
the definition of local area is recalled which means an area
in a city governed by the Karnataka Municipalities Act or a
municipal corporation governed by the Karnataka Municipal
Corporations Act it would immediately appear that local
areas vary immensely both in dimension, population,
industrial growth, economic development and scale and kind
of municipal service rendered. One has to keep in view a
local area like Bangalore City, a highly industrially
advanced capital city of Karnataka and a small municipality
having a population of 10,000. Now, if the expression ‘a
local area’ in s. 3 is interpreted to mean ‘every local
area’ as contended on behalf of the respondents, before any
tax can be levied under s. 3 it would be obligatory on State
Government to levy tax on entry of scheduled goods in every
local area in Karnataka State for consumption, use or sale
therein. The contention thus is that coverage of all local
areas for levy of tax would provide outside maximum limit of
power under s. 3. The question is: Is it a minimum condition
for exercise of power ? If it is, the rates of tax will have
to vary considerably in direct relation to the local area
for which the rate is being prescribed. It would be unjust
and inequitable to levy tax on entry of goods at the same
rate for such local area as Bangalore Municipal Corporation
and a small municipal area, the two local areas being
uncomparable with regard to area, population, industrial
growth and consumption of such scheduled goods in the area.
Now, if the impact of the tax is to be equitable keeping in
view cost of its collection, a tax levied at such a small
rate as one paise for goods worth Rs. 100 ad valorem for a
small local area and 2% ad valorem for such industrially
developed local area like Bangalore Corporation,
832
it would make nonsense of the levy apart from the uneconomic
outcome keeping in view the administrative cost of
collection. If the Government is obliged on the construction
canvassed on behalf of the respondents to encompass all
local areas for the purpose of levying tax under the
statute, the rates would have to be varied so much to avoid
the evil of making the impost unjust and if the rates have
to be varied from area to area the administrative cost in
smaller areas with lower rates and negligible entry of
scheduled goods in such area would make the tax wholly
uneconomic. It must, therefore, logically follow that choice
to select local area is a necessary concomitant of a choice
to select rates, which power is admittedly conferred on the
State Government. Purpose underlying the statute, namely, to
provide financial assistance to the municipalities would be
better effectuated if the tax realised considerably
outweighs the administrative cost involved in collecting the
tax. And it is a well known canon of construction that the
purpose underlying the statute would provide a reliable
external aid for proper construction because the Court would
adopt that construction which would effectuate the purpose.
The High Court unfortunately approached the matter from
the standpoint of literal grammatical construction of the
section overlooking the object underlying the Act, the
historical background which the High Court itself had
noticed, and holding that unless the section is re-written
as understood by the High Court, the State Government had no
power to pick and choose local areas. Mr. S. T. Desai,
learned counsel for the respondents, after drawing our
attention to the reasoning that appealed to the High Court
for holding that s. 3 does not permit choice of local areas,
urged that if the section is so read as to enable the State
Government to pick and choose or select local areas the
section would be violative of Art. 14 of the Constitution
because while all municipalities need additional finances to
recoup the loss suffered by them on abolition of octroi,
only some local areas are selected for the purpose of levy
of tax leaving others out and there being no reasonable
basis to sustain the classification, s. 3 would be
unconstitutional.
There is always a presumption of constitutionality of a
statute. If the language is rather not clear and precise as
it ought to be, attempt of the Court is to ascertain the
intention of the legislature and put that construction which
would lean in favour of the constitutionality unless such
construction is wholly untenable. However, where one has to
look at a section not very well drafted but the object
behind the legislation and the purpose of enacting the same
is clearly discernible, the Court cannot hold its hand and
blame the draftsman
833
and chart an easy course of striking down the statute. In
such a situation the Court should be guided by a creative
approach to ascertain what was intended to be done by the
legislature in enacting the legislation and so construe it
as to give force and life to the intention of the
legislature. This is not charting any hazardous course but
is amply borne out by an observation worth reproducing in
extenso in Seaford Court Estates Ltd. v. Asher. It reads as
under:
“Whenever a statute comes up for consideration it
must be remembered that it is not within human powers
to foresee the manifold sets of facts which may arise,
and, even if it were, it is not possible to provide for
them in terms free from all ambiguity. The English
language is not an instrument of mathematical
precision. Our literature would be much the poorer if
it were. This is where the draftsmen of Acts of
Parliament have often been unfairly criticised. A
judge, believing himself to be fettered by the supposed
rule that he must look to the language and nothing
else, laments that the draftsmen have not provided for
this or that, or have been guilty of some or other
ambiguity. It would certainly save the judges trouble
if Acts of Parliament were drafted with divine
prescience and perfect clarity. In the absence of it,
when a defect appears a judge cannot simply fold his
hands and blame the draftsman. He must set to work on
the constructive task of finding the intention of
Parliament, and he must do this not only from the
language of the statute, but also from a consideration
of the social conditions which gave rise to it and of
the mischief which it was passed to remedy, and then he
must supplement the written word so as to give “force
and life” to the intention of the legislature. That was
clearly laid down (3 Co. Rep. 7b) by the resolution of
the judges (SIR ROGER MANWOOD, C.B., and the other
barons of the Exchequer) in Heydon’s case (1584) 3 Co.
Rep. 7a, and it is the safest guide today. Good
practical advice on the subject was given about the
same time by PLOWDEN in his note (2 Plowd. 465) to
Eyston v. Studd (1574), 2 Plowd. 463. Put into homely
metaphor it is this: A judge should ask himself the
question how, if the makers of the Act had themselves
come across this ruck in the texture of it, they would
have straightened it out ? He must then do as they
would have done. A judge must not alter the material of
which the Act is woven, but he can and should iron out
the creases”.
834
This view was re-affirmed in Norman v. Norman.
Let it be remembered that the impugned measure is a
taxing statute and in the matter of taxing statute the
legislature enjoys a larger discretion in the matter of
classification so long as it adheres to the fundamental
principle underlying the doctrine of classification. The
power of the legislature to classify is of wide range and
flexibility so that it can adjust its taxation in all proper
and reasonable ways. In Khyerbari Tea Co. Ltd., & Anr. v.
The State of Assam this Court observed as under:
“It is, of course, true that the validity of tax
laws can be questioned in the light of the provisions
of Arts. 14, 19; and Art. 301 if the said tax directly
and immediately imposes a restriction on the freedom of
trade; but the power conferred on this Court to strike
down a taxing statute if it contravenes the provisions
of Arts. 14, 19 or 301 has to be exercised with
circumspection, bearing in mind that the power of the
State to levy taxes for the purpose of governance and
for carrying out its welfare activities is a necessary
attribute of sovereignty and in that sense it is a
power of paramount character”.
It was also observed that legislature which is competent to
levy a tax must inevitably be given full freedom to
determine which articles should be taxed, in what manner and
at what rate. It would, therefore, be idle to contend that a
State must tax everything in order to tax something. In tax
matters, “the State is allowed to pick and choose districts,
objects, persons, methods and even rates for taxation if it
does so reasonably” (see Willis on ‘Constitutional Law’, p.
587). This statement of law has been approved by this Court
in the case of East India Tobacco Co. v. State of Andhra
Pradesh. The question, therefore, is, whether a tax of a
certain kind can be levied on entry of goods in certain
local areas, the classification of local areas, if found to
be reasonable, the levy of tax would not be invalid on the
ground that choosing certain areas only excluding some
others would violate Article 14. Whether in this case the
classification is reasonable would be presently examined but
the contention that if the State Government is granted a
choice in the matter of selection of local area, ipso facto,
the statute would be unconstitutional as being violative of
Art. 14, must be negatived.
835
In order to ascertain whether the classification of
local areas for the purposes of levy of tax is reasonable or
not, a reference may be made to the impugned notification.
Table annexed to the notification shows in all 27 local
areas selected for levy of tax. They are again divided into
three groups, A, B and C for selecting rates to be levied on
different scheduled goods. A mere glance at the local areas
selected and those according to the petitioner excluded,
viz., areas within the jurisdiction of various Gram
Panchayats would bring in bold relief that population
criterion appears to have been adopted in selecting local
areas for levy of tax. Does population criterion provide a
reasonable basis for classification vis-a-vis a tax levied
on entry of goods in the area ? It would be undeniable that
population basis would provide a reasonable criterion for
selecting local areas for the purpose of levy tax
simultaneously excluding those which do not answer the
population criterion. One unquestionable element
scientifically established about a taxing statute is that
the yield from the tax must be sufficiently in excess of
cost of collection so that the tax which is levied for
augmenting public finances to be utilised for public good
would be productive. Where the cost of administrative
machinery required to be set up for collecting tax is either
marginally lower or equal or marginally higher than the
yield from the tax, the measure would be uneconomic if not
counterproductive. Now, if the tax in this case is levied on
the entry of scheduled goods in local areas, the yield would
be directly proportionate to the consumption of the goods in
local areas and the consumption of goods is directly related
to the population within the local area. Viewed from this
angle, population criterion would provide a reasonable basis
for classification for selectively levying the tax by
choosing local area and by specifying different rates so as
to make the tax productive. Therefore, there is no substance
in the contention that the classification in this case was
unreasonable. The High Court was accordingly in error in
holding that s. 3 did not permit the State Government to
pick and choose local areas for the levy of tax and that
levy of tax under s. 3 in all local areas within Karnataka
State was a minimum condition for exercise of the power
under s. 3. The contention must, accordingly be negatived.
Another contention that found favour with the High
Court was contention No. 13 before the High Court which in
the opinion of the High Court was a formidable one. The
contention was that the Act in its application has not
excluded petty dealers from its purview. Developing the
contention it was said that the abolished octroi would have
been less oppressive in its application than the tax under
the impugned legislation falling on petty dealers. What
appealed to the
836
High Court was that if a petty dealer brought within the
local area scheduled goods of the value of Rs. 5 for
consumption, use or sale therein, he is to get himself
registered after paying the registration fee, maintain
accounts for his dealings in such goods and submit monthly
and annual returns and to appear before the assessing
authority when called upon to do so. The High Court
thereafter contrasted the position of a dealer under the
Karnataka Sales Tax Act, 1957, and observed that a dealer
whose total turnover is less than Rs. 25,000 was not liable
to pay sales tax and one whose turnover was less than Rs.
10,000 was not required to get registered, to maintain
accounts or to submit returns. The High Court also found the
registration fee of Rs. 25 prescribed under the rules, the
liability to maintain accounts in the manner prescribed and
to submit monthly and yearly returns as constituting
unreasonable restrictions on the fundamental right of the
petty dealers to carry on their trade or business.
Learned Attorney-General urged that this contention was
no where to be found in the petition filed by the
petitioners in the High Court and, therefore, the High Court
was in error in entertaining the contention. Unfortunately,
the judgment does not show that learned Advocate-General who
appeared for the State raised such an objection to the
entertaining of the contention on behalf of the petitioners
by the High Court. Not only has the High Court permitted the
contention to be raised but accepted the same. In fairness
to the petitioners it would be unjust to shut out the
contention on this technical ground, though we must note
that Mr. S. T. Desai learned counsel who appeared for the
respondents found it difficult to pursue the contention. We,
however, propose to deal with the contention on merits.
The taxing event under the statute is entry of
scheduled goods in a local area for consumption, use or sale
therein at the instance of a dealer. The expression ‘dealer’
has the same meaning as assigned to it in clause (k) of s. 2
of Karnataka Sales Tax Act, 1957, which defines dealer to
mean any person who carries on the business of buying,
selling, supplying or distributing goods, directly or
otherwise, whether for cash or for deferred payment, or for
commission, remuneration or other valuable consideration and
includes amongst others, a casual trader. Section 10(1)
makes it obligatory upon every dealer whose total turnover
in any year is not less than the specified sum to get
himself registered under the Act. Sub-s. (2) carves out an
exception to sub-s. (1) that notwithstanding anything
contained in sub-s. (1) every casual trader dealing in goods
mentioned in the
837
Third Schedule or the Fourth Schedule irrespective of the
quantum of his total turnover in such goods shall get
himself registered. And in passing it may be mentioned that
Schedule Three includes 12 items and Schedule Four includes
seven items. In other words, casual trader who is included
in the expression ‘dealer’ in respect of the goods mentioned
in the Third or Fourth Schedule, irrespective of his
turnover, has to get himself registered. Therefore, it
cannot be said that all petty dealers are excluded from the
application of Karnataka Sales Tax Act. That apart, the
taxing event under the impugned Act being entry of scheduled
goods in a local area at the instance of a dealer, the
volume or quantum of business of the dealer is not at all
relevant. The situation now obtaining may be contrasted with
the situation when octroi was levied. Octroi was payable by
anyone irrespective of the fact whether he was a dealer in
the goods or not, on goods which were liable to octroi when
they were brought within the octroi limits. It was payable
at the octroi limits where there used to be an office called
‘octroi naka’. This was found to be cumbersome and the
present Act seeks to replace to some extent that infamous
octroi. The noteworthy departure made by the Act is that now
unlike every importer only a dealer dealing in the scheduled
goods will have to pay the tax and that too not at the
octroi limit but afterwards while submitting returns. It
would be a case of wild imagination that a dealer in
scheduled goods would bring within the local area scheduled
goods in such a small quantity as to make maintenance of
accounts a very difficult task as also a registration fee of
Rs. 25 so heavy as to dub it an unreasonable restriction on
his right to carry on trade or commerce. Only three items
are included in scheduled goods and it is legitimate to
believe that a dealer not dealing in either of the scheduled
goods would not be required to get himself registered. And
if he is going to deal in the goods his turnover would not
be so small in scheduled goods as to make maintenance of
accounts and payment of registration fee of Rs. 25 so
disproportionately heavy as to render it as an unreasonable
restriction on his right to carry on trade.
Looking at the matter from a slightly different angle
it must be confessed that if the contention of the
respondents were to be upheld it would provide a fruitful
source for evasion of tax. If petty dealers are to be
excluded some criterion will have to be provided relatable
to his turnover in scheduled goods for classifying who are
petty dealers. That turnover will have to be kept reasonably
high to make it rational but in that event the big
registered dealer can always conveniently defeat the tax by
bringing into the local area scheduled goods in the name of
such petty dealer. It would be an incentive to
838
a big registered dealer to set up a number of petty dealers
and import scheduled goods into local area in the name of
those petty dealers. To avoid any such contingency, if the
tax is levied on the entry of scheduled goods in the local
area at the hands of a dealer irrespective of his turnover a
potential source of evasion can be checkmated. Viewed from
either angle, non-exemption of petty dealers from the
operation of the Act does not lead to the conclusion that
the impugned legislation constitutes unreasonable
restrictions on the fundamental right of the petty dealers
to carry on their trade or business. The High Court was,
therefore, in our opinion, in error in striking down the
impugned legislation on the ground that the Act imposes
unreasonable restrictions on the fundamental right of the
petty dealers to carry on their trade.
The two contentions which found favour with the High
Court for striking down the impugned Act and the
notification issued thereunder, in our opinion, are not
sustainable and, therefore, the Act and the notification
issued thereunder would have to be upheld.
Mr. S. T. Desai, learned counsel for the respondents,
however, wanted us to affirm the judgment of the High Court
on some of the contentions which the High Court negatived.
It would, therefore, be necessary to examine some of those
contentions which were repeated before us.
The contention which was put into forefront was that
the impugned Act violates the constitutional guarantee of
freedom of trade, commerce and intercourse throughout India
as enshrined in Part XIII of the Constitution and is not
saved by Art. 304. At one stage there was some controversy
whether a tax law was within the inhibition of Part XIII of
the Constitution, but this controversy is no more res
integra and it has been set at rest by the majority view in
Atiabari Tea Co. Ltd. v. The State of Assam & Ors.,
Gajendragadkar, J. speaking for the majority, observed that
the intrinsic evidence furnished by some of the Articles of
Part XIII shows that taxing laws are not excluded from the
operation of Art. 301 which means that tax laws can and do
amount to restrictions freedom from which is guaranteed to
trade under the said Part. He then posed a question whether
all tax laws attract the provisions of Part XIII
irrespective of the fact whether their impact on trade or
its movement is direct and immediate or indirect and remote,
and proceeded to answer it observing that if any Act imposes
any direct restrictions on the very movement of such goods
it attracts the provisions of Art. 301 and
839
its validity can be sustained only if it satisfies the
requirements of Art. 302 or Art. 304 of Part XIII.
Accordingly, the contention that all taxes should be
governed by Art. 301 whether or not their impact on trade is
immediate or mediate, direct or remote, was negatived. The
majority view in Atiabari Tea Co. Ltd. case (Supra) was re-
examined and affirmed in The Automobile Transport
(Rajasthan) Ltd. v. The State of Rajasthan & Ors. Das, J.
speaking for the majority in this context observed as under:
“After carefully considering the arguments
advanced before us we have come to the conclusion that
the narrow interpretation canvassed for on behalf of
the majority of the State cannot be accepted, namely,
that the relevant articles in Part XIII apply only to
legislation in respect of the entries relating to trade
and commerce in any of the lists of the Seventh
Schedule. But we must advert here to one exception
which we have already indicated in an earlier part of
this judgment. Such regulatory measures as do not
impede the freedom of trade, commerce and intercourse
and compensatory taxes for the use of trading
facilities are not hit by the freedom declared by Art.
301. They are excluded from the purview of the
provisions of Part XIII of the Constitution for the
simple reason that they do not hamper trade, commerce
and intercourse but rather facilitate them”.
The law was thus further clarified by pointing out that
all taxes should and could not be prohibited by Art. 301 and
must of necessity for their sustenance seek the coverage of
Art. 304. If a measure is shown to be regulatory or the tax
imposed is compensatory in character meaning the tax instead
of hampering trade or commerce would facilitate the same, it
would be immune from a challenge under Art, 301. In other
words, if the tax is shown to be compensatory in character
irrespective of the fact whether it is saved by Art. 304 or
not it does not come within the inhibition of Art. 301.
Accordingly, if validity of a tax law is challenged on the
ground that it violates freedom of inter-State commerce,
trade and intercourse, guaranteed by Art. 301, the
contention may be repelled by showing (i) that the tax is
compensatory in character as explained in The Automobile
Transport (Rajasthan) Ltd. case (Supra); or (ii) that it
satisfies the requirements of Art. 304.
This very question came up for further examination in
Khyerbari Tea Co. Ltd. case (Supra) wherein constitutional
validity
840
of Assam Taxation (On Goods carried by Road or on Inland
Water-ways) Act, 1961, was challenged on the ground that it
was violative of Art. 301 and was not saved by Art. 304.
This Court analysed the majority view in Atiabari Tea Co.
Ltd. case (Supra) and The Automobile Transport (Rajasthan)
Ltd., case (Supra) and observed as under:
“It would immediately be noticed that though the
majority view in the Automobile Transport (Rajasthan)
case substantially agreed with the majority decision in
the case of Atiabari Tea Co., there would be a clear
difference between the said two views in relation to
the scope and effect of the provisions of Art. 304(b).
According to the majority view in the case of Atiabari
Tea Co., if an Act is passed under Art. 304(b) and its
validity is impeached, then the State may seek to
justify the Act on the ground that the restrictions
imposed by it are reasonable and in the public
interest, and in doing so, it may, for instance, rely
on the fact that the taxes levied by the impugned Act
are compensatory in character. On the other hand,
according to the majority decision in the Automobile
Transport Rajasthan case, compensatory taxation would
be outside Art. 301 and cannot, therefore, fall under
Art. 304(b)”
On a conspectus of these decisions it appears well
settled that if a tax is compensatory in character it would
be immune from the challenge under Art. 301. If on the other
hand the tax is not shown to be compensatory in character it
would be necessary for the party seeking to sustain the
validity of the tax law to show that the requirements of
Art. 304 have been satisfied.
The State did not attempt in the High Court to sustain
the validity of the impugned tax law on the submission that
it was compensatory in character. No attempt was made to
establish that the dealers in scheduled goods in a local
area would be availing of municipal services and municipal
services can be efficiently rendered if the municipality
charged with a duty to render services has enough and
adequate funds and that the impugned tax was a measure for
compensating the municipalities for the loss of revenue or
for augmenting its finances. As such a stand was not taken,
it is not necessary for us to examine whether the tax is
compensatory in character.
It was, however, strenuously contended that the tax was
not discriminatory in character inasmuch as the impugned tax
was levied both on scheduled goods manufactured within the
State of Karnataka and similar goods brought into Karnataka
State from outside and accordingly Art. 304(a) has been
complied with. It was further urged
841
that the requirements of Art. 304(b) are fully satisfied.
The High Court was of the opinion that the impugned tax was
non-discriminatory in character inasmuch as scheduled goods
imported from other States and scheduled goods produced or
manufactured within the State but outside the local area
were treated alike by the impugned Act. In the opinion of
the High Court the discrimination, if at all, was between
goods produced or manufactured within a local area and those
brought from outside the local area into it, but Art. 304(a)
has no relevance to such differential treatment.
Article 304 lifts the embargo placed on the legislative
power of State to enact law which may infringe the freedom
of inter-State trade and commerce if its requirements are
fulfilled. Article 304(a) imposes a restriction on the power
of legislature of a State to levy tax which may be
discriminatory in character by according discriminatory
treatment to goods manufactured in the State and identical
goods imported from outside the State. The effect of Art.
304(a) is to treat imported goods on the same basis as goods
manufactured or produced in a State. This article further
enables the State to levy tax on such imported goods in the
same manner and to the same extent as may be levied on the
goods manufactured or produced inside the State. If a State
tax law accords identical treatment in the matter of levy
and collection of tax on the goods manufactured within the
State and identical goods imported from outside the State,
Art. 304(a) would be complied with. There is an underlying
assumption in Art. 304(a) that such a tax when levied within
the constraints of Art. 304(a) would not be violative of
Art. 301 and State legislature has the power to levy such
tax.
Tax under the impugned legislation would be levied on
scheduled goods either manufactured or produced within
Karnataka State or imported from outside on their entry in a
local area. Thus, this tax is non-discriminatory in that it
does not discriminate between scheduled goods manufactured
or produced within Karnataka State or those imported from
outside. And the microscopic discrimination relied upon by
the respondents that there is differential treatment
accorded to goods produced within a local area and those
imported from outside the local area is hardly relevant for
the purpose of Art. 304(a). The High Court was accordingly
right in concluding that the impugned tax satisfies the
requirements of Art. 304(a).
The next limb of the contention is that the impugned
tax being leviable on the entry of goods into a local area
will have a direct and immediate impact on the movement of
goods and consequently would infringe freedom of inter-State
trade guaranteed by Art. 301. It must for its validity also
satisfy the requirements of Art. 304(b). In order
842
to satisfy the requirements of Art. 304(b) it must be shown
that the restrictions imposed by the tax law on inter-State
freedom of trade and commerce are reasonable and are in
public interest as also the bill for the purpose of levy of
such tax has been introduced or moved in the State
legislature with the previous sanction of the President. To
the extent the impugned tax is levied on the entry of goods
in a local area it cannot be gainsaid that its immediate
impact would be on movement of goods and the measure would
fall within the inhibition of Art. 301. Can it, however, be
said that this tax imposes restrictions which in the facts
and circumstances of the case could not be said to be
reasonable? It was contended on behalf of the respondents
that the tax not being single point tax it would impose a
heavy burden and a very burden of tax would certainly
constitute unreasonable restriction on the freedom of trade
and commerce.
To substantiate the contention that the Act places
unreasonable restrictions on the freedom of trade it was
submitted that it is a multi-point tax and in final analysis
the burden would be disproportionately heavy. It was said
that whenever goods are taken from one local area to another
local area to third local area at every point of entry the
tax would be levied and, therefore, in ultimate result the
burden would be very heavy so as to make it thoroughly
unreasonable. Undoubtedly, the tax would have to be paid
every time when scheduled goods enter a local area. In other
words, it is not a single point tax and, therefore, if some
scheduled goods successively enter different local areas for
consumption, use or sale therein, there would be multiple
levy. But no attempt was made to substantiate this charge by
showing as to how goods are taken from one local area to
another local area to third local area for successive sales
because if they are taken for consumption or use, there is
no question of taking the scheduled goods from one local
area to another local area. It is, therefore, difficult to
conceive a situation realistically that the impost would be
very heavy so as to make it unreasonable. The High Court
negatived the contention and in our opinion rightly
observing that the petitioners have not been able to show
that the burden of the tax was so heavy as to constitute
unreasonable restriction on the freedom of trade and
commerce. In this connection, however, reliance was placed
on the decision of this Court in Kalyani Stores v. State of
Orissa & Ors. In that case the State enhanced the duty in
respect of foreign liquors from Rs. 40 to Rs. 70 per L.P.
gallon and this levy was challenged on the ground that it
infringed the guarantee of Art. 301. The State attempted to
save the levy by contending that it was saved by Art.
304(b).
843
The Court struck down the levy as being violative of Art.
301 observing as under:
“Article 301 has declared freedom of trade,
commerce and intercourse throughout the territory of
India, and restriction on that freedom may only be
justified if it falls within Art. 304. Reasonableness
of the restriction would have to be adjudged in the
light of the purpose for which the restriction is
imposed, that is “as may be required in the public
interest”. Without entering upon an exhaustive
categorization of what may be deemed “required in the
public interest” it may be said that restrictions which
may validly be imposed under Art. 304(b) are those
which seek to protect public health, safety, morals and
property within the territory”.
The later decision has shown that the observation in
Kalyani Stores case is confined to the facts of that case.
This would be evident from the decision of this Court in
State of Kerala v. A.B. Abdul Khadir & Ors. wherein it is
observed that in Kalyani Stores case (Supra) the Court did
not intend to lay down a proposition of universal
applicability that the imposition of a duty or tax in every
case would tantamount per se to an infringement of Art. 301
and that only such restrictions or impediments which
directly or immediately impede free flow of trade, commerce
and intercourse would fall within the prohibition contained
in Art. 301. Even apart from this, a levy which appears to
be quite reasonable in its impact on the movement of goods
and is imposed for the purpose of augmenting municipal
finances which suffered a dent on account of abolition of
octroi cannot be said to impose an unreasonable restriction
on the freedom of inter-State trade, commerce and
intercourse. In this connection it would be useful to recall
the observations of this Court in Khyerbari Tea Co. Ltd.
case that the power conferred on this Court to strike down a
taxing statute if it contravenes the provisions of Arts. 14,
19 or 301 has to be exercised with circumspection, bearing
in mind that the power of the State to levy taxes for the
purpose of governance and for carrying out its welfare
activities is a necessary attribute of sovereignty and in
that sense it is a power of paramount character. It is,
therefore, idle to contend that the levy imposed an
unreasonable restriction on the freedom of trade and
commerce.
The next question is whether this levy is in public
interest. As has been pointed out earlier, the levy was to
compensate the loss suffered by abolition of octroi.
844
without a demur. After removing the obnoxious features of
octroi a very modest impost is levied on entry of goods in a
local area and that too not for further augmenting finances
of the municipalities but for compensating the loss suffered
by the abolition of octroi is certainly a levy in public
interest. As has been repeatedly observed by this Court, the
taxes generally are imposed for raising public revenue for
better governance of the country and for carrying out
welfare activities of our welfare State envisaged in the
constitution and, therefore, even if a tax to some extent
imposes an economic impediment to the activity taxed, that
by itself is not sufficient either to stigmatise the levy as
unreasonable or not in public interest.
The last limb of the argument is whether the proviso to
Art. 304(b) is satisfied or not. The proviso imposes an
obligation to obtain the Presidential sanction before
introducing the bill or amendment for the purpose of clause
(b) of Art. 304 in the legislature of a State. It cannot be
gainsaid that Presidential sanction was not obtained before
introducing the bill which was ultimately enacted into the
impugned Act but after the bill was enacted into an Act the
same was submitted to the President for his assent and it is
common ground that the President has accorded his assent. If
prior presidential sanction is a sine qua non, the
requirement of the proviso is not satisfied but in this
context it would be advantageous to refer to Art. 255 which
provides that no Act of Parliament or of the Legislature of
a State and no provision in any such Act shall be invalid by
reason only that some recommendation or previous sanction
required by the Constitution was not given if assent to that
Act was given by the President. Now, in this case it is
common ground that the President did accord his sanction to
the impugned Act. Therefore, the requirement of the proviso
is satisfied.
To sum up, the impugned tax is not discriminatory in
character as envisaged by Art. 304(a) and it does impose
restrictions but the restrictions imposed are reasonable and
in public interest and the Act subsequently having received
the assent of the President, the proviso to Art. 304(b) is
complied with and, therefore, the impugned Act is saved by
Art. 304 and could not be struck down on the ground that it
was violative of Art. 301. The contention must accordingly
be negatived.
Two minor subsidiary points were sought to be made en
passant by Mr. S. T. Desai and a brief mention of them would
be in order. It was urged that there is a certain amount of
vagueness in s. 3 inasmuch as no light is thrown by the
words of the section or the other provisions of the Act on
the question as to computation of tax to be
845
made at specified percentage ad valorem without specifying
which price is to be taken into consideration for levy of
tax, namely, the sale price or the purchase price of the
concerned scheduled goods. It was said that sale price and
purchase price of a dealer would be different and in the
absence of any guideline in the charging section or any
other provision in the Act it would lead to arbitrary
determination or computation of tax by taking “in one case
sale price of the scheduled goods and in another case
purchase price”. The contention overlooks the specific
guideline to be found in the charging section itself. The
taxing event is the entry of scheduled goods into a local
area. The tax becomes payable on the entry of scheduled
goods in a local area. Therefore, the price of the scheduled
goods at the time of entry paid by the dealer who is the
importer of goods within the scheduled area would be the ad
valorem price on the basis of which tax would be computed.
No subsequent rise or fall in price has any relevance to the
computation of the tax. The charging section says that the
tax shall be levied and collected on the entry of scheduled
goods in a local area at specified percentage not exceeding
two per cent ad valorem. Therefore, the price of the
scheduled goods at the time when the tax becomes chargeable
irrespective of the fact that it would be computed at a
later date when the dealer submits his return as required by
the other provisions of the Act, would be the price for
computation of tax. And there is no ambiguity or any
vagueness in this behalf. There is thus specific guideline
in the charging section itself for taking into account the
price according to which tax would be computed. The Hight
Court negatived this contention by observing that it would
be open to the dealer to choose either the sale price or the
purchase price whichever is favourable to him for
computation of his liability to tax. This approach overlooks
the specific language of s. 3 which clearly indicates what
price is to be taken into account for computing the tax.
When the goods are brought within the local area they have a
certain price. The price may be the price which the importer
of goods has paid before bringing the goods within the local
area. Even if the dealer is the manufacturer of goods at a
place outside the local area and brings the goods within the
local area he must have determined the price of the goods.
Therefore, the dealer has some specific price of the
scheduled goods which are being brought within the local
area at the time of entry in the local area and the entry
being the taxing event that would be the price which alone
can be taken into account for computing the tax ad valorem.
Therefore, we find it difficult to agree with the reasoning
adopted by the High Court in rejecting the contention but
for the reasons hereinabove mentioned the contention is
devoid of merits and accordingly it must be negatived.
846
As we are not able to uphold the contentions which
found favour with the High Court in striking down the
impugned Act and the notification issued thereunder and as
we find no merit in other contentions canvassed on behalf of
the respondents for sustaining the judgment of the High
Court, this appeal must succeed. Accordingly this appeal is
allowed and the judgment of the High Court is quashed and
set aside and the petition filed by the Respondent in the
High Court is dismissed with costs throughout.
P.B.R. Appeal allowed.
847
