{"id":270408,"date":"1980-09-25T00:00:00","date_gmt":"1980-09-24T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/state-of-karnataka-anr-vs-ms-hansa-corporation-on-25-september-1980"},"modified":"2016-10-12T14:50:08","modified_gmt":"2016-10-12T09:20:08","slug":"state-of-karnataka-anr-vs-ms-hansa-corporation-on-25-september-1980","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/state-of-karnataka-anr-vs-ms-hansa-corporation-on-25-september-1980","title":{"rendered":"State Of Karnataka & Anr vs M\/S. Hansa Corporation on 25 September, 1980"},"content":{"rendered":"
Supreme Court of India<\/div>\n
State Of Karnataka & Anr vs M\/S. Hansa Corporation on 25 September, 1980<\/div>\n
Equivalent citations: 1981 AIR 463, 1981 SCR (1) 823<\/div>\n
Author: D Desai<\/div>\n
Bench: Desai, D.A.<\/div>\n
           PETITIONER:\nSTATE OF KARNATAKA & ANR.\n\n\tVs.\n\nRESPONDENT:\nM\/S. HANSA CORPORATION\n\nDATE OF JUDGMENT25\/09\/1980\n\nBENCH:\nDESAI, D.A.\nBENCH:\nDESAI, D.A.\nCHANDRACHUD, Y.V. ((CJ)\n\nCITATION:\n 1981 AIR  463\t\t  1981 SCR  (1) 823\n 1980 SCC  (4) 697\n CITATOR INFO :\n E&R\t    1985 SC 621\t (3,5,6,8,9,11,14,17,18,21)\n R\t    1987 SC 558\t (15)\n F\t    1988 SC1353\t (17)\n\n\nACT:\n     Karnataka Tax  on Entry  of Goods\tinto Local Areas for\nConsumption.  Use  or  Sale  therein  Act,  1979-Section  3-\nValidity of-Power  of State Government to levy tax on select\ngoods entering some local areas-state if bound to impose tax\non all goods entering any local area.\n\n\n\nHEADNOTE:\n     The Karnataka  Tax on  Entry of  Goods Into Local Areas\nfor Consumption, Use or Sale therein Act 1979 was enacted by\nthe State Legislature to levy tax on certain select goods at\nthe time  of their  entry into\ta local\t area. This  tax was\ndevised to  off set the short fall in the funds of municipal\nand other  local bodies by reason of the abolition of octroi\nwhich by  experience was  found to impede the development of\ntrade and commerce.\n     Section 3\tof the\timpugned Act  provides that  the tax\nshall be levied on entry of the scheduled goods into a local\narea for  consumption, use  or sale  therein at such rate as\nmay be specified by the State Government and different rates\nmay be specified for different local areas.\n     By a notification issued under section 3 of the Act the\nState Government specified 27 local areas in the State which\ncould levy the tax on scheduled goods and specified the rate\nof tax for each such local area therein. The Scheduled goods\nare all varieties of textile; tobacco, sugar and the like.\n     Upholding the  two principal contentions, among others,\nraised by  the appellants in their writ petitions before the\nHigh Court  that (i)  section 3\t does not  empower the State\nGovernment to  apply the provisions of the Act to such local\nareas only  and to  exclude other  local areas\tand (ii) the\nlevy of\t tax on\t all dealers  irrespective of  the value  of\nscheduled goods\t brought by  them into\ta local area without\nexempting petty\t dealers imposes an unreasonable restriction\non the\tright to  carry articles, the High Court struck down\nthe Act as invalid.\n     Allowing the appeal\n^\n     HELD: The\texpress power  of  choosing  and  specifying\ndifferent rates subject to maximum for different local areas\nis conferred  on the  State Government not by the expression\n'such  rate'   but  by\t the  expression  'rates'  with\t the\nadjectival clause  'different rates  may  be  specified\t for\ndifferent local\t areas'. It was, therefore, not necessary to\nqualify the  expression 'such  rate' again by the expression\n'as may be specified by the State Government' because that\n824\nis covered  by the express power conferred by the expression\n'different  rates  may\tbe  specified  for  different  local\nareas'. The use of article 'a' before 'local area' signifies\nnot every local area but any local area. [831C-D]\n     In re.  Sanders; ex parte Serqueant, Law Journal (1885)\n54 Q.B.\t 331, The Queen v. Justices of Durham, [1895] 1 Q.B.\n801, Coast  Brick &  Tile Works\t Ltd. &\t Ors. v.  Prem Chand\nRaichand & Anr. [1967] 1 Appeal Cases 192 referred to.\n     Although, the  taxing event is entry of scheduled goods\nin a  local area, section 3 empowers the State Government to\nspecify different  rates of  tax  in  respect  of  different\nscheduled goods\t for different\tlocal areas.  A\t local\tarea\nmeans  an   area  in   a  city\tgoverned  by  the  Karnataka\nMunicipalities Act  or a  municipal corporation\t governed by\nthe Karnataka  Municipal Corporation  Act. The\tlocal  areas\nvary immensely\tboth in\t dimension,  population,  industrial\ngrowth,\t and  the  scale  and  kind  of\t municipal  services\nrendered by them. If the argument that 'a local area' should\nbe interpreted\tto mean\t 'every local  area' is\t accepted it\nwould be  obligatory on\t the State Government to levy tax on\nentry of  scheduled goods  in every  local area. It would be\nunjust and  inequitable to levy tax on entry of goods at the\nsame rates  for a  big municipal  corporation  and  a  small\nmunicipal area, each of which does not stand comparison with\nthe other.  The choice\tto select local areas is a necessary\nconcomitant of a choice to select the rates which is a power\nconferred on  the State\t Government. The  purpose underlying\nthe statute,  namely, to provide financial assistance to the\nmunicipalities\twould  be  better  effectuated\tif  the\t tax\nrealised considerably  outweighs the  administrative cost in\ncollection. The\t High Court  fell into\tan error  because it\nadopted a  literal, grammatical\t construction and overlooked\nthe  underlying\t  object  of  the  Act\tand  the  historical\nbackground in levying the tax. [831C-G; 832C-E]\n     There is  no force\t in the contention that if the State\nGovernment is granted a choice in the matter of selection of\nlocal areas ipso facto the statute would be unconstitutional\nas being  violative of\tArticle 14.<\/a>  It is  a well  accepted\nprinciple of  constitutional law  that\tthere  is  always  a\npresumption of constitutionality of a statute. In the matter\nof taxing  statutes the\t legislature which  is competent  to\nlevy a\ttax, has full freedom to determine the articles, the\nmanner and the rate of tax. [832G-H; 834E]\n     Khyerbari Tea  Co. Ltd.  & Anr.  v. The  State of Assam<\/a>\n[1964] 5  S.C.R. 975  and East India Tobacco Co. v. State of\nAndhra Pradesh<\/a> [1963] 1 S.C.R. 404, 409 referred to.\n     The High Court was wrong in its view that section 3 did\nnot permit the State Government to pick and choose the local\nareas for  the levy of tax. In selecting the local areas and\nthe rates  of tax  to be levied on different scheduled goods\nthe State has adopted the criterion of population of a local\narea which  undeniably is a reasonable criterion because the\nyield of  the tax  would be  directly proportionate  to\t the\nconsumption  of\t the  goods  in\t the  local  areas  and\t the\nconsumption of\tgoods is  directly related to the population\nwithin the local area. [835F-G]\n     Non-exemption of  petty dealers  from the\toperation of\nthe Act\t does not  lead to  the conclusion that the impugned\nlegislation constituted\t an unreasonable  restriction on the\nfundamental right  of the  petty dealers  to carry  on their\ntrade or  business. If\tpetty dealers were to be exempt, the\ncriterion of turnover in the scheduled goods for classifying\nthe petty  dealers will\t have to be kept high in which event\nthe big\t registered dealers  could  conveniently  bring\t the\nscheduled goods\t into local  areas  in\tthe  name  of  petty\ndealers. The taxing\n825\nevent being  entry of scheduled goods in a local area at the\ninstance of  a dealer,\tthe volume or quantum of business of\nthe dealer  is not  at all  relevant. Unlike  under the\t old\nsystem of  octroi where\t every importer was taxed, under the\nAct only a dealer, dealing in scheduled goods is required to\npay the tax. [838B-C]\n     If a  State tax  law accords identical treatment in the\nmatter\tof  levy  and  collection  of  taxes  on  the  goods\nmanufactured within  the State\tand identical goods imported\nfrom outside  the State, Art. 304(a)<\/a> would be complied with.\nThere is  an underlying\t assumption in\tArticle 304(a)<\/a>\tthat\nsuch a\ttax when  levied within\t the constraints  of Article\n304(a)<\/a> would  not be  violative of Article 301<\/a> and the State\nLegislature has the power to levy such tax. [841E]\n     In the  instant case  the tax  is non-discriminatory in\nthat  it  does\tnot  discriminate  between  scheduled  goods\nmanufactured  within  the  State  and  those  imported\tfrom\noutside the  State. A minor discrimination between two types\nof goods  if any  is hardly  relevant for  the\tpurposes  of\nArticle 304(a).<\/a>\t Therefore, the\t impugned tax  satisfies the\nrequirements of Article 304(a).<\/a> [841F-G]\n     There is  no evidence  to show  that the  burden of tax\nwould  be   so\theavy\tas  to\tconstitute  an\tunreasonable\nrestriction on\tthe freedom of trade and commerce. Although,\nin theory  the tax  leviable is\t not a\tsingle point tax and\nbecomes leviable at every point whenever the goods are taken\nfrom one local area to another and then on to yet another no\nattempt was  made to  substantiate  how\t the  goods  are  so\nsuccessively moved because if they are taken for consumption\nor use\tin one\tplace, there  is no  question of taking them\nfrom that local area to another local area and so on. [842D-\nG]\n     Even if  the tax,\tto some\t extent, imposes an economic\nimpediment to  the activity  taxed that\t by  itself  is\t not\nsufficient to  stigmatise the levy as unreasonable or not in\npublic interest.  What is  sought to  be done is to impose a\nmodest levy on certain goods at the time of their entry into\na local\t area by  removing the obnoxious features of octroi.\nThe tax\t is not intended to augment the finance of the local\nbodies but  to compensate  them for  loss  suffered  by\t the\nabolition of the octroi. [844A-B]\n     The requirements  of the  proviso to Article 304(b)<\/a> are\nsatisfied because  the President  accorded sanction  to\t the\nimpugned Act. [844F]\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 3094 of
\n1979.\n<\/p>\n
     Appeal by\tSpecial Leave  from the\t Judgment and  Order
\ndated 24-8-1979\t of the\t Karnataka High\t Court in  W.P.\t No.
\n7039\/79.\n<\/p>\n
     L. N.  Sinha, Attorney  General of\t India and N. Nettar
\nfor the Appellant.\n<\/p>\n
     S. T.  Desai, N. Srinivasan, M. Mudgal and Vineet Kumar
\nfor the Respondent.\n<\/p>\n
     The Judgment of the Court was delivered by
\n     Desai, J.-Constitutional  validity of  Karnataka Tax on
\nEntry of Goods Into Local Areas for Consumption, Use or Sale
\nTherein Act<\/a>,  1979 (‘Act’  for short),\tand the Notification
\nNo. FD 66<\/span>
\n826<\/span>
\nCSL 79 dated May 31, 1979, issued by the State Government in
\nexercise of  the powers conferred by section 3<\/a> of the Act is
\ninvolved in  this appeal by special leave at the instance of
\nthe State of Karnataka and one other.\n<\/p>\n
     Karnataka State enacted the Act to provide for the levy
\nof tax\ton entry  of goods into local areas for consumption,
\nuse or\tsale therein,  being Karnataka\tAct No.\t 27 of 1979.
\nSection 3<\/a>  empowers the State Government to levy and collect
\ntax on\tentry of  scheduled goods  into\t a  local  area\t for
\nconsumption, use  or sale therein at such rate not exceeding
\n2% ad  valorem, as may be specified by the State Government.
\nArmed with the power conferred by s. 3<\/a>, the State Government
\nissued notification-1  No. FD  66 CSL 79 dated May 31, 1979,
\nspecifying the local areas and the rates of tax at which the
\ntax shall be levied and collected under the Act on the entry
\nof scheduled goods mentioned in col. 2 of the table appended
\nto the\tnotification  into  local  areas  specified  in\t the
\ncorresponding entries. Goods liable to levy of tax under the
\nAct on\tentry in  the specified local areas at the specified
\nrates are  those set out in the schedule annexed to the Act.
\nThey are  (i)  all  varieties  of  textiles,  viz.,  cotton,
\nwoollen, silk  or artificial  silk including  rayon or nylon
\nwhether manufactured  in mills,\t powerlooms or handlooms and
\nhosiery cloth in lengths; (ii) tobacco and all its products;\n<\/p>\n
(iii) sugar  other than\t sugar candy  confectionery and\t the
\nlike. In  all 27  local areas were specified for the purpose
\nof levy of tax on entry of scheduled goods in the respective
\nlocal areas  at varying rates specified in the notification.
\nThe Act<\/a>\t received the  assent of  the President\t on May\t 17,
\n1979, and  it was  published in the State Government Gazette
\non June 1, 1979, and came into force from that very day.\n<\/p>\n
     Numerous petitions\t were filed under Article 226<\/a> of the
\nConstitution in\t the High Court of Karnataka contending that
\nthe  Act   and\tthe   Notification  issued  thereunder\twere
\nunconstitutional on diverse grounds. As many as 24 different
\ncontentions were  canvassed before  the High  Court. Of them
\ntwo, viz.,  contention nos.  13 and 19 found favour with the
\nHigh Court with the result that the Act and the Notification
\nissued\tthereunder  were  declared  unconstitutional  and  a
\nmandamus was  issued directing\tthe State Government and its
\nofficers to  forebear from  enforcing the  provisions of the
\nAct against the petitioners before the High Court.\n<\/p>\n
     The contentions which found favour with the High Court,
\nare: (i)  section 3<\/a>  of the  Act does  not empower the State
\nGovernment to  apply the  provisions of\t the Act  to certain
\nlocal areas  only and  to exclude other local areas; (ii) as
\nthe Act imposes the tax on dealers
\n827<\/span>
\nirrespective of the value of scheduled goods brought by them
\ninto a local area and does not exempt petty dealers, the Act
\nimposes unreasonable  restrictions  on\tpetty  dealers.\t The
\nremaining 22  contentions were\trejected some  of which were
\ncanvassed before  us on behalf of the respondents to sustain
\nthe decision of the High Court.\n<\/p>\n
     It is  necessary at  this stage  to  notice  the  broad
\nfeatures of  the Act. The long title and the preamble of the
\nAct demonstrate\t the purpose  for which the Act was enacted,
\nit being  to empower  the State\t Government to\tlevy tax  on
\nentry of  goods specified in the schedule (‘scheduled goods’
\nfor short)  in local  areas to\tbe specified  by  the  State
\nGovernment in  this behalf. Section 2<\/a>, the dictionary clause
\nof the\tAct, defines  ‘dealer’ in  the Act  to have the same
\nmeaning assigned  to it\t in  clause  (k)  of  s.  2  of\t the
\nKarnataka Sales\t Tax Act,  1957. Section  2<\/a>, sub-section (5)
\ndefines ‘local area’ as under:\n<\/p>\n
\t  “2(5). ‘Local\t area’ means  the  area\t within\t the
\n     limits  of\t  a  City   under  the\tKarnataka  Municipal
\n     Corporations Act, 1976 (Karnataka Act 14 of 1977), or a
\n     municipality under\t the Karnataka\tMunicipalities\tAct,
\n     1964 (Karnataka Act 22 of 1964)”.<\/p><\/blockquote>\n
     Section 2<\/a>, sub-s. (7) defines ‘scheduled goods’ to mean
\ngoods specified in the schedule to the Act. Section 3<\/a> is the
\ncharging section. It reads as under:\n<\/p>\n
\t  “3.  Levy   of  tax-There   shall  be\t levied\t and
\n     collected a  tax on entry of the scheduled goods into a
\n     local area for consumption, use or sale therein at such
\n     rate not  exceeding two  percent ad  valorem as  may be
\n     specified by  the State  Government and different rates
\n     may be specified for different local areas”.<\/p><\/blockquote>\n
     Section 4<\/a>\tprovides for  registration  of\tdealers\t and
\nmakes it  obligatory upon every dealer in scheduled goods to
\nget himself  registered under  the  Act\t in  the  prescribed
\nmanner. Rule  4, sub-rule  (3) of the Karnataka Tax on Entry
\nof Goods  into Local  Areas for\t consumption,  Use  or\tSale
\ntherein Rules,\t1979 (‘Rules’  for short), enacted under the
\nAct has\t prescribed a  fee of Rs. 25\/- for registration as a
\ndealer. Chapter\t III of\t the  Act  contains  provisions\t for
\nreturn, assessment, payment, recovery and collection of tax.
\nChapter IV  prescribes taxing  authorities. Chapter  V deals
\nwith  appeals\tand  revisions\t and  Chapter\tVI  contains
\nmiscellaneous provisions.  Schedule annexed  to the Act sets
\nout the\t goods on  the entry of which in the specified local
\nareas tax can be levied.\n<\/p>\n
     Entry 52  in State\t List read  with Article  246<\/a> of the
\nConstitution confers power on the State legislature to enact
\na law to levy tax
\n828<\/span>
\non the entry of goods into a local area for consumption, use
\nor sale\t therein. This\ttax in\tcommon parlance\t is known as
\n‘octroi’. Octroi  was leviable by the municipality under the
\npower delegated\t to it\tunder  various\tlaws  providing\t for
\nsetting up  of and  administration of municipal corporations
\nand municipalities.  Octroi thus understood was being levied
\nby various  municipalities  and\t municipal  corporations  in
\nKarnataka State.  Since some  time a  feeling had grown that
\noctroi\twas   obnoxious\t in   character\t and   impeded\t the
\ndevelopment of\ttrade and  commerce and\t there was a clamour
\nfor its\t abolition. Taking  note of  the resentment  of\t the
\nbusiness community,  Karnataka State  abolished octroi\twith
\neffect from April 1, 1979. However, no one was in doubt that
\noctroi was  a major  source of revenue to municipalities and
\nits abolition  would cause such a dent on municipal finances
\nthat  compensation   for  the\tloss  would  be\t inevitable.
\nAccordingly, the  State Government  undertook  a  policy  of
\ncompensating the municipalities year by year. For generating
\nfunds for  this compensation, rates of sales tax were raised
\nand in\tsome cases  a surcharge\t was levied.  The amount  so
\ncollected was  not sufficient to bridge the gap in municipal
\nbudget. To further augment the finances for compensating the
\nmunicipalities, additional  fund was  sought to be generated
\nby levy of tax under the impugned legislation. No doubt, the
\ntax levied  was one  on entry  of scheduled  goods in  local
\nareas meaning  thereby it  had all  the\t broad\tfeatures  of
\noctroi, yet the manner of levy, the method of collection and
\nthe persons  liable to\tpay the\t same were so devised by the
\nimpugned Act  as to remove the obnoxious features of octroi.
\nAs the\tcharging section  shows, the tax was to be levied on
\nentry of  scheduled goods  in a\t local area  at a rate to be
\nspecified by the Government not exceeding 2% ad valorem. The
\ntaxing event  would be\tthe entry  of scheduled\t goods in  a
\nlocal area.  In fact,  octroi was being levied on almost all
\nconceivable  goods   entering  into   a\t  local\t  area\t for
\nconsumption, use  or sale  therein. There  appears to  be  a
\ndiscernible policy  in selecting  the goods  set out  in the
\nschedule, the  entry of\t which in a local area would provide
\nthe taxing  event. The goods selected for levy are textiles,
\ntobacco and  sugar. Way\t back in 1957 there was a demand for
\nabolition of  sales tax\t on the\t scheduled goods  and at the
\ninstance of  the  Union\t Government  the  State\t Governments
\nagreed to  forego their\t right to  levy\t sales\ttax  on\t the
\naforementioned scheduled  goods on  the condition  that\t the
\nUnion Government  would levy  additional excise duty on them
\nand distribute\tthe net\t proceeds of  such duty\t amongst the
\nconsenting States.  Parliament accordingly  has enacted\t the
\nAdditional Duties  on Goods  (Goods of\tSpecial\t Importance)
\nAct, 1957. Therefore, while raising rates of sales tax
\n829<\/span>
\nand levying  surcharge in  respect of  some other  items the
\nState Government  could not  have levied  sales tax  on\t the
\nscheduled goods. They were, therefore, selected for the levy
\nof the\ttax under  the impugned\t Act on\t their entry  into a
\nlocal area.\n<\/p>\n
     Having noticed the historical background leading to the
\nenactment of the impugned legislation we may now examine the
\ntwo contentions\t which found  favour with the High Court and
\nas a  result of\t which the  Act and  the notification issued
\nthereunder were struck down by the High Court.\n<\/p>\n
     The respondents  contend that  upon a true construction
\ns. 3  permits the State Government only to specify different
\nrates of  tax not  exceeding the  maximum prescribed  in the
\nsection to  be levied  on entry\t of scheduled  goods into  a
\nlocal area but the State Government has no power to pick and
\nchoose local  area. In other words, the respondents say that
\nthe tax has to be levied on entry of scheduled goods in each
\nand every  local area  as the word is understood in the Act.
\nThe submission\tis that\t the expression ‘as may be specified
\nby the\tState Government’  qualifies  the  expression  ‘such
\nrates’ and  not “local\tarea” and  this\t was  sought  to  be
\nreinforced by  saying that  Article ‘a’\t precedes local area
\nwhich would mean every local area and not any local area. It
\nwas further  stated that  if what  is contended on behalf of
\nthe State  is correct,\tone will have to read the word ‘and’
\nbetween the  words ‘therein’  and ‘at such rate’ which might
\nimply on  a grammatical\t construction  that  discretion\t was
\nconferred upon the State Government not only to specify rate
\nbut also the local area.\n<\/p>\n
     Legislative drafting  will reach its peak of glory when
\nperfection  is\tattained  in  demonstrably  manifesting\t the
\nlegislative  intent  by\t unequivocal  language.\t But  it  is
\nequally undeniable  that language  at its  best\t is  a\tvery
\nimperfect vehicle  of conveying\t the intent  of the speaker.
\nLegislature speaks  through legislation and tries its utmost
\nto convey  what it intends to do by the legislation but even
\nbest of\t draftsmen cannot  claim to  attain perfection. On a
\nvery superficial  view one  may be  tempted  to\t accept\t the
\nconstruction canvassed\tfor on behalf of the respondents but
\nwhen the  section is read more minutely with necessary pause
\nand emphasis and the policy enacting the legislation is kept
\nin view\t and also the inconceivable situation that may arise
\nif  the\t  construction\tcanvassed   for\t or  behalf  of\t the
\nrespondents is kept in focus, the contention will have to be
\nrepelled.\n<\/p>\n
     There is  a two-fold answer to the contention that upon
\na literal  grammatical construction of s. 3<\/a> the State has no
\nchoice in  the matter  of selecting  local  areas  and\tthat
\nchoice is limited to specifying rates
\n830<\/span>
\nbut after  choosing rates  all local  areas will  have to be
\ncovered for  the levy of tax. It is easy to read the section
\nwith a\tpause and punctuation after the word ‘ad valorem’ so
\nthat the  expression ‘as  may  be  specified  by  the  State
\nGovernment’ would  qualify both the expressions ‘local area’
\nand ‘such  rate’. This would be clear from the fact that the
\nlast expression\t in the\t section  ‘different  rates  may  be
\nspecified for  different local areas’ would be an adjectival
\nclause to  the word  ‘rate’ so\tthat the power to choose and
\nspecify different  rates is  not implicit in the words ‘such
\nrate’  but   in\t the  expression  ‘different  rates  may  be
\nspecified for  different local areas’. Thus an express power
\nof  choosing  and  specifying  different  rates\t subject  to
\nmaximum for  different local areas is conferred on the State
\nGovernment not\tby the\texpression ‘such  rate’ but  by\t the
\nexpression ‘rates’  with the  adjectival  clause  ‘different
\nrates may  be specified\t for different local areas’. It was,
\ntherefore, not\tnecessary to  qualify the  expression  ‘such
\nrate’ again  by the  expression ‘as  may be specified by the
\nState Government’  because that\t is covered  by the  express
\npower conferred\t by the\t expression ‘different\trates may be
\nspecified for  different local\tareas’. In  approaching\t the
\nmatter from  this angle\t the expression ‘as may be specified
\nby the State Government’ would qualify the expression ‘local
\narea’ and  this construction  would be further reinforced by
\nuse of\tArticle ‘a’  prefixing ‘local  area’ meaning thereby
\nnot every  local area but any local area. In this connection
\nreference may  be made\twith advantage to In re. Sankers; ex
\nparte Sergeant,\t wherein the  expression ‘under\t the hand of
\nthe Judge  of a\t county court’ came up for construction. The
\nconstruction canvassed for was that a county court would not
\nmean  any   county  court   but\t the  country  court  having
\njurisdiction in\t the matter. Repelling this construction the
\nCourt, after  ascertaining the\tobject of  the\tlegislation,
\nheld that  a county  court would  mean any  county court, an
\napproach  dictated   by\t strict\t  grammatical  construction.
\nSimilarly,  in\t The  Queen   v.  Justices  of\tDurham,\t the
\nexpression ‘a  Court’ was  interpreted to mean any court and
\nin accepting  this construction\t the Court was guided by the
\nbare letter  of the  statute which  would be  a proper guide
\nunless there would be something in it to modify the ordinary
\nmeaning of  the words used. The Privy Council in Coast Brick
\n & Tile Works Ltd.  & Ors.  v. Premchand  Raichand  &  Anr.,
\nobserved that  the expression  ‘the security’ should be read
\nas ‘a security’, a variation which in a poorly drawn section
\ndoes not  do great  violence to\t the language used. Even if,
\ntherefore, a literal grammatical
\n831<\/span>
\nconstruction were  to be adopted, on a proper reading of the
\nsection power  is conferred  on the State Government by s. 3<\/a>
\nnot only  to specify different rates for different areas but
\nalso to\t specify local\tareas entry  into which of scheduled
\ngoods would  provide the taxing event. There is thus a power
\nto choose  and specify\tlocal areas  as well  as choose\t and
\nspecify rate  of taxation  subject to  maximum prescribed in
\nthe section.\n<\/p>\n
     Assuming our  reading of  the section  is not  correct,
\nthere is another way of approaching the matter. It cannot be
\ngainsaid that  the State  Government is empowered to specify
\nthe different  rates of\t tax not  exceeding the\t maximum  in
\nrespect of  different scheduled\t goods for  different  local
\nareas. This  implies that  even though\tthe taking  event is
\nentry of  scheduled  goods  in\ta  local  area,\t nonetheless
\ndifferent rates\t may be prescribed for different local areas
\nand express  power  in\tthat  behalf  is  conferred  on\t the
\nGovernment by  providing in  section 3<\/a>\tthat different rates
\nmay be specified for different local areas. If at this stage
\nthe definition of local area is recalled which means an area
\nin a  city governed by the Karnataka Municipalities Act or a
\nmunicipal corporation  governed by  the Karnataka  Municipal
\nCorporations Act  it would  immediately\t appear\t that  local
\nareas  vary   immensely\t both\tin  dimension,\t population,
\nindustrial growth,  economic development  and scale and kind
\nof municipal  service rendered.\t One has  to keep  in view a
\nlocal  area  like  Bangalore  City,  a\thighly\tindustrially
\nadvanced capital  city of Karnataka and a small municipality
\nhaving a  population of\t 10,000. Now,  if the  expression ‘a
\nlocal area’  in s.  3<\/a> is  interpreted to  mean ‘every  local
\narea’ as  contended on behalf of the respondents, before any
\ntax can be levied under s. 3<\/a> it would be obligatory on State
\nGovernment to  levy tax on entry of scheduled goods in every
\nlocal area  in Karnataka  State for consumption, use or sale
\ntherein. The  contention thus  is that coverage of all local
\nareas for levy of tax would provide outside maximum limit of
\npower under s. 3<\/a>. The question is: Is it a minimum condition
\nfor exercise of power ? If it is, the rates of tax will have
\nto vary\t considerably in  direct relation  to the local area
\nfor which  the rate  is being prescribed. It would be unjust
\nand inequitable\t to levy  tax on  entry of goods at the same
\nrate for  such local area as Bangalore Municipal Corporation
\nand a  small municipal\tarea,  the  two\t local\tareas  being
\nuncomparable with  regard to  area,  population,  industrial
\ngrowth and  consumption of such scheduled goods in the area.
\nNow, if\t the impact of the tax is to be equitable keeping in
\nview cost  of its  collection, a  tax levied at such a small
\nrate as\t one paise  for goods worth Rs. 100 ad valorem for a
\nsmall local  area and  2% ad  valorem for  such industrially
\ndeveloped local area like Bangalore Corporation,
\n832<\/span>
\nit would make nonsense of the levy apart from the uneconomic
\noutcome\t keeping   in  view   the  administrative   cost  of
\ncollection. If the Government is obliged on the construction
\ncanvassed on  behalf of\t the respondents  to  encompass\t all
\nlocal areas  for  the  purpose\tof  levying  tax  under\t the
\nstatute, the  rates would have to be varied so much to avoid
\nthe evil  of making  the impost unjust and if the rates have
\nto be  varied from  area to  area the administrative cost in
\nsmaller areas  with lower  rates  and  negligible  entry  of
\nscheduled goods\t in such  area would  make  the\t tax  wholly
\nuneconomic. It must, therefore, logically follow that choice
\nto select  local area is a necessary concomitant of a choice
\nto select  rates, which power is admittedly conferred on the
\nState Government. Purpose underlying the statute, namely, to
\nprovide financial  assistance to the municipalities would be
\nbetter\teffectuated   if  the\ttax  realised\tconsiderably
\noutweighs the administrative cost involved in collecting the
\ntax. And  it is\t a well known canon of construction that the
\npurpose underlying  the statute\t would\tprovide\t a  reliable
\nexternal aid for proper construction because the Court would
\nadopt that construction which would effectuate the purpose.\n<\/p>\n
     The High Court unfortunately approached the matter from
\nthe standpoint\tof literal  grammatical construction  of the
\nsection overlooking  the  object  underlying  the  Act,\t the
\nhistorical  background\twhich  the  High  Court\t itself\t had
\nnoticed, and  holding that  unless the section is re-written
\nas understood by the High Court, the State Government had no
\npower to  pick and  choose local  areas. Mr.  S.  T.  Desai,
\nlearned counsel\t for  the  respondents,\t after\tdrawing\t our
\nattention to  the reasoning  that appealed to the High Court
\nfor holding that s. 3<\/a> does not permit choice of local areas,
\nurged that  if the section is so read as to enable the State
\nGovernment to  pick and\t choose or  select local  areas\t the
\nsection would  be violative  of Art.  14<\/a> of the Constitution
\nbecause while all municipalities need additional finances to
\nrecoup the  loss suffered  by them  on abolition  of octroi,
\nonly some  local areas\tare selected for the purpose of levy
\nof tax\tleaving others\tout and\t there being  no  reasonable
\nbasis  to   sustain  the   classification,  s.\t3<\/a>  would  be
\nunconstitutional.\n<\/p>\n
     There is always a presumption of constitutionality of a
\nstatute. If  the language is rather not clear and precise as
\nit ought  to be,  attempt of  the Court\t is to ascertain the
\nintention of the legislature and put that construction which
\nwould lean  in favour  of the  constitutionality unless such
\nconstruction is\t wholly untenable. However, where one has to
\nlook at\t a section  not very  well drafted  but\t the  object
\nbehind the  legislation and the purpose of enacting the same
\nis clearly  discernible, the  Court cannot hold its hand and
\nblame the draftsman
\n833<\/span>
\nand chart  an easy  course of  striking down the statute. In
\nsuch a\tsituation the  Court should  be guided by a creative
\napproach to  ascertain what  was intended  to be done by the
\nlegislature in\tenacting the  legislation and so construe it
\nas  to\t give  force  and  life\t to  the  intention  of\t the
\nlegislature. This  is not  charting any hazardous course but
\nis amply  borne out  by an  observation worth reproducing in
\nextenso in  Seaford Court Estates Ltd. v. Asher. It reads as
\nunder:\n<\/p>\n
\t  “Whenever a  statute comes up for consideration it
\n     must be  remembered that  it is not within human powers
\n     to foresee\t the manifold sets of facts which may arise,
\n     and, even if it were, it is not possible to provide for
\n     them in  terms free  from all  ambiguity.\tThe  English
\n     language  is   not\t an   instrument   of\tmathematical
\n     precision. Our  literature would  be much the poorer if
\n     it were.  This  is\t where\tthe  draftsmen\tof  Acts  of
\n     Parliament\t have  often  been  unfairly  criticised.  A
\n     judge, believing himself to be fettered by the supposed
\n     rule that\the must\t look to  the language\tand  nothing
\n     else, laments  that the draftsmen have not provided for
\n     this or  that, or\thave been  guilty of  some or  other
\n     ambiguity. It  would certainly  save the judges trouble
\n     if\t Acts\tof  Parliament\t were  drafted\twith  divine
\n     prescience and  perfect clarity.  In the absence of it,
\n     when a  defect appears  a judge  cannot simply fold his
\n     hands and\tblame the  draftsman. He must set to work on
\n     the constructive  task  of\t finding  the  intention  of
\n     Parliament, and  he must  do this\tnot  only  from\t the
\n     language of  the statute, but also from a consideration
\n     of the  social conditions\twhich gave rise to it and of
\n     the mischief which it was passed to remedy, and then he
\n     must supplement  the written  word so as to give “force
\n     and life” to the intention of the legislature. That was
\n     clearly laid  down (3 Co. Rep. 7b) by the resolution of
\n     the judges\t (SIR ROGER  MANWOOD, C.B.,  and  the  other
\n     barons of\tthe Exchequer) in Heydon’s case (1584) 3 Co.
\n     Rep. 7a,  and  it\tis  the\t safest\t guide\ttoday.\tGood
\n     practical advice  on the  subject was  given about\t the
\n     same time\tby PLOWDEN  in his  note (2  Plowd. 465)  to
\n     Eyston v.\tStudd (1574),  2 Plowd. 463. Put into homely
\n     metaphor it  is this:  A judge  should ask\t himself the
\n     question how,  if the  makers of the Act had themselves
\n     come across  this ruck in the texture of it, they would
\n     have straightened\tit out\t? He  must then\t do as\tthey
\n     would have done. A judge must not alter the material of
\n     which the\tAct is woven, but he can and should iron out
\n     the creases”.\n<\/p><\/blockquote>\n
834<\/span><\/p>\n
     This view was re-affirmed in Norman v. Norman.<\/p><\/blockquote>\n
     Let it  be remembered  that the  impugned measure\tis a
\ntaxing statute\tand in\tthe matter  of\ttaxing\tstatute\t the
\nlegislature enjoys  a larger  discretion in  the  matter  of
\nclassification so  long as  it adheres\tto  the\t fundamental
\nprinciple underlying  the doctrine  of\tclassification.\t The
\npower of  the legislature  to classify\tis of wide range and
\nflexibility so that it can adjust its taxation in all proper
\nand reasonable\tways. In  Khyerbari Tea\t Co. Ltd., & Anr. v.
\nThe State of Assam<\/a> this Court observed as under:\n<\/p>\n
\t  “It is,  of course,  true that the validity of tax
\n     laws can  be questioned  in the light of the provisions
\n     of Arts.  14, 19; and Art. 301<\/a> if the said tax directly
\n     and immediately imposes a restriction on the freedom of
\n     trade; but\t the power conferred on this Court to strike
\n     down a  taxing statute if it contravenes the provisions
\n     of Arts.  14, 19  or  301\thas  to\t be  exercised\twith
\n     circumspection, bearing  in mind  that the power of the
\n     State to  levy taxes  for the purpose of governance and
\n     for carrying  out its welfare activities is a necessary
\n     attribute of  sovereignty and  in that  sense it  is  a
\n     power of paramount character”.\n<\/p><\/blockquote>\n
It was\talso observed that legislature which is competent to
\nlevy  a\t tax  must  inevitably\tbe  given  full\t freedom  to
\ndetermine which articles should be taxed, in what manner and
\nat what rate. It would, therefore, be idle to contend that a
\nState must  tax everything in order to tax something. In tax
\nmatters, “the State is allowed to pick and choose districts,
\nobjects, persons,  methods and even rates for taxation if it
\ndoes so\t reasonably” (see Willis on ‘Constitutional Law’, p.\n<\/p>\n
587). This  statement of law has been approved by this Court
\nin the\tcase of\t East India  Tobacco Co.  v. State of Andhra
\nPradesh<\/a>. The  question, therefore,  is, whether\t a tax\tof a
\ncertain kind  can be  levied on\t entry of  goods in  certain
\nlocal areas,  the classification of local areas, if found to
\nbe reasonable,\tthe levy  of tax would not be invalid on the
\nground that  choosing  certain\tareas  only  excluding\tsome
\nothers would  violate Article  14.<\/a> Whether  in this case the
\nclassification is reasonable would be presently examined but
\nthe contention\tthat if\t the State  Government is  granted a
\nchoice in the matter of selection of local area, ipso facto,
\nthe statute  would be unconstitutional as being violative of
\nArt. 14<\/a>, must be negatived.\n<\/p>\n
835<\/span><\/p>\n
     In order  to ascertain  whether the  classification  of
\nlocal areas for the purposes of levy of tax is reasonable or
\nnot, a\treference may  be made to the impugned notification.
\nTable annexed  to the  notification shows  in all  27  local
\nareas selected\tfor levy of tax. They are again divided into
\nthree groups, A, B and C for selecting rates to be levied on
\ndifferent scheduled  goods. A mere glance at the local areas
\nselected and  those according  to the  petitioner  excluded,
\nviz.,  areas   within  the   jurisdiction  of  various\tGram
\nPanchayats  would  bring  in  bold  relief  that  population
\ncriterion appears  to have  been adopted  in selecting local
\nareas for  levy of  tax. Does population criterion provide a
\nreasonable basis  for classification  vis-a-vis a tax levied
\non entry  of goods in the area ? It would be undeniable that
\npopulation basis  would provide\t a reasonable  criterion for
\nselecting  local   areas  for\tthe  purpose   of  levy\t tax
\nsimultaneously excluding  those\t which\tdo  not\t answer\t the
\npopulation    criterion.    One\t   unquestionable    element
\nscientifically established  about a  taxing statute  is that
\nthe yield  from the  tax must  be sufficiently\tin excess of
\ncost of\t collection so\tthat the  tax which  is\t levied\t for
\naugmenting public  finances to\tbe utilised  for public good
\nwould  be  productive.\tWhere  the  cost  of  administrative
\nmachinery required to be set up for collecting tax is either
\nmarginally lower  or equal  or marginally  higher  than\t the
\nyield from  the tax,  the measure would be uneconomic if not
\ncounterproductive. Now, if the tax in this case is levied on
\nthe entry of scheduled goods in local areas, the yield would
\nbe directly proportionate to the consumption of the goods in
\nlocal areas and the consumption of goods is directly related
\nto the\tpopulation within  the local  area. Viewed from this
\nangle, population criterion would provide a reasonable basis
\nfor  classification  for  selectively  levying\tthe  tax  by
\nchoosing local\tarea and by specifying different rates so as
\nto make the tax productive. Therefore, there is no substance
\nin the\tcontention that\t the classification in this case was
\nunreasonable. The  High Court  was accordingly\tin error  in
\nholding that  s. 3<\/a>  did not  permit the\t State Government to
\npick and  choose local\tareas for  the levy  of tax and that
\nlevy of\t tax under  s. 3<\/a> in all local areas within Karnataka
\nState was  a minimum  condition for  exercise of  the  power
\nunder s. 3<\/a>. The contention must, accordingly be negatived.\n<\/p>\n
     Another contention\t that found  favour  with  the\tHigh
\nCourt was  contention No.  13 before the High Court which in
\nthe opinion  of the  High Court\t was a\tformidable one.\t The
\ncontention was\tthat the  Act in  its  application  has\t not
\nexcluded petty\tdealers from  its  purview.  Developing\t the
\ncontention it  was said that the abolished octroi would have
\nbeen less  oppressive in  its application than the tax under
\nthe impugned  legislation falling  on  petty  dealers.\tWhat
\nappealed to the
\n836<\/span>
\nHigh Court  was that  if a  petty dealer  brought within the
\nlocal area  scheduled goods  of\t the  value  of\t Rs.  5\t for
\nconsumption, use  or sale  therein, he\tis  to\tget  himself
\nregistered  after  paying  the\tregistration  fee,  maintain
\naccounts for  his dealings  in such goods and submit monthly
\nand annual  returns  and  to  appear  before  the  assessing
\nauthority  when\t called\t upon  to  do  so.  The\t High  Court
\nthereafter contrasted  the position  of a  dealer under\t the
\nKarnataka Sales\t Tax Act,  1957, and  observed that a dealer
\nwhose total  turnover is less than Rs. 25,000 was not liable
\nto pay\tsales tax  and one  whose turnover was less than Rs.
\n10,000 was  not required  to  get  registered,\tto  maintain
\naccounts or to submit returns. The High Court also found the
\nregistration fee  of Rs.  25 prescribed under the rules, the
\nliability to  maintain accounts in the manner prescribed and
\nto  submit   monthly  and  yearly  returns  as\tconstituting
\nunreasonable restrictions  on the  fundamental right  of the
\npetty dealers to carry on their trade or business.\n<\/p>\n
     Learned Attorney-General urged that this contention was
\nno  where   to\tbe  found  in  the  petition  filed  by\t the
\npetitioners in the High Court and, therefore, the High Court
\nwas in\terror in entertaining the contention. Unfortunately,
\nthe judgment does not show that learned Advocate-General who
\nappeared for  the State\t raised such  an  objection  to\t the
\nentertaining of\t the contention on behalf of the petitioners
\nby the High Court. Not only has the High Court permitted the
\ncontention to  be raised  but accepted the same. In fairness
\nto the\tpetitioners it\twould be  unjust  to  shut  out\t the
\ncontention on  this technical  ground, though  we must\tnote
\nthat Mr.  S. T.\t Desai learned\tcounsel who appeared for the
\nrespondents found it difficult to pursue the contention. We,
\nhowever, propose to deal with the contention on merits.\n<\/p>\n
     The  taxing   event  under\t the  statute  is  entry  of
\nscheduled goods in a local area for consumption, use or sale
\ntherein at the instance of a dealer. The expression ‘dealer’
\nhas the same meaning as assigned to it in clause (k) of s. 2
\nof Karnataka  Sales Tax\t Act, 1957,  which defines dealer to
\nmean any  person who  carries on  the  business\t of  buying,
\nselling,  supplying   or  distributing\tgoods,\tdirectly  or
\notherwise, whether  for cash or for deferred payment, or for
\ncommission, remuneration or other valuable consideration and
\nincludes amongst  others, a  casual  trader.  Section  10(1)<\/a>
\nmakes it  obligatory upon  every dealer whose total turnover
\nin any\tyear is\t not less  than the  specified\tsum  to\t get
\nhimself registered  under the  Act. Sub-s. (2) carves out an
\nexception  to\tsub-s.\t(1)  that  notwithstanding  anything
\ncontained in sub-s. (1) every casual trader dealing in goods
\nmentioned in the
\n837<\/span>
\nThird Schedule\tor the\tFourth Schedule\t irrespective of the
\nquantum of  his total  turnover\t in  such  goods  shall\t get
\nhimself registered.  And in passing it may be mentioned that
\nSchedule Three\tincludes 12 items and Schedule Four includes
\nseven items.  In other\twords, casual trader who is included
\nin the expression ‘dealer’ in respect of the goods mentioned
\nin  the\t Third\tor  Fourth  Schedule,  irrespective  of\t his
\nturnover, has  to  get\thimself\t registered.  Therefore,  it
\ncannot be  said that all petty dealers are excluded from the
\napplication of\tKarnataka Sales\t Tax Act.  That\t apart,\t the
\ntaxing event under the impugned Act being entry of scheduled
\ngoods in  a local  area at  the instance  of a\tdealer,\t the
\nvolume or  quantum of  business of  the dealer is not at all
\nrelevant. The situation now obtaining may be contrasted with
\nthe situation  when octroi was levied. Octroi was payable by
\nanyone irrespective  of the  fact whether he was a dealer in
\nthe goods  or not, on goods which were liable to octroi when
\nthey were  brought within  the octroi limits. It was payable
\nat the octroi limits where there used to be an office called
\n‘octroi naka’.\tThis was  found to  be\tcumbersome  and\t the
\npresent Act  seeks to  replace to  some extent that infamous
\noctroi. The noteworthy departure made by the Act is that now
\nunlike every importer only a dealer dealing in the scheduled
\ngoods will  have to  pay the  tax and  that too\t not at\t the
\noctroi limit  but afterwards  while submitting\treturns.  It
\nwould be  a case  of  wild  imagination\t that  a  dealer  in
\nscheduled goods\t would bring within the local area scheduled
\ngoods in  such a  small quantity  as to\t make maintenance of
\naccounts a very difficult task as also a registration fee of
\nRs. 25\tso heavy as to dub it an unreasonable restriction on
\nhis right  to carry  on trade  or commerce. Only three items
\nare included  in scheduled  goods and  it is  legitimate  to
\nbelieve that a dealer not dealing in either of the scheduled
\ngoods would  not be  required to get himself registered. And
\nif he  is going\t to deal in the goods his turnover would not
\nbe so  small in\t scheduled goods  as to\t make maintenance of
\naccounts and  payment of  registration\tfee  of\t Rs.  25  so
\ndisproportionately heavy  as to render it as an unreasonable
\nrestriction on his right to carry on trade.\n<\/p>\n
     Looking at\t the matter  from a slightly different angle
\nit  must   be  confessed  that\tif  the\t contention  of\t the
\nrespondents were  to be\t upheld it  would provide a fruitful
\nsource for  evasion of\ttax. If\t petty\tdealers\t are  to  be
\nexcluded some  criterion will  have to be provided relatable
\nto his\tturnover in  scheduled goods for classifying who are
\npetty dealers. That turnover will have to be kept reasonably
\nhigh  to  make\tit  rational  but  in  that  event  the\t big
\nregistered dealer  can always conveniently defeat the tax by
\nbringing into  the local area scheduled goods in the name of
\nsuch petty dealer. It would be an incentive to
\n838<\/span>
\na big  registered dealer to set up a number of petty dealers
\nand import  scheduled goods  into local\t area in the name of
\nthose petty  dealers. To  avoid any such contingency, if the
\ntax is\tlevied on  the entry of scheduled goods in the local
\narea at the hands of a dealer irrespective of his turnover a
\npotential source  of evasion  can be checkmated. Viewed from
\neither\tangle,\tnon-exemption  of  petty  dealers  from\t the
\noperation of  the Act  does not\t lead to the conclusion that
\nthe   impugned\t  legislation\t constitutes\tunreasonable
\nrestrictions on\t the fundamental  right of the petty dealers
\nto carry  on their  trade or  business. The  High Court was,
\ntherefore, in  our opinion,  in error  in striking  down the
\nimpugned legislation  on the  ground that  the\tAct  imposes
\nunreasonable restrictions  on the  fundamental right  of the
\npetty dealers to carry on their trade.\n<\/p>\n
     The two  contentions which\t found favour  with the High
\nCourt  for   striking  down   the  impugned   Act  and\t the
\nnotification issued  thereunder, in  our  opinion,  are\t not
\nsustainable and,  therefore, the  Act and  the\tnotification
\nissued thereunder would have to be upheld.\n<\/p>\n
     Mr. S.  T. Desai,\tlearned counsel for the respondents,
\nhowever, wanted\t us to affirm the judgment of the High Court
\non some\t of the\t contentions which the High Court negatived.
\nIt would,  therefore, be  necessary to examine some of those
\ncontentions which were repeated before us.\n<\/p>\n
     The contention  which was\tput into  forefront was that
\nthe impugned  Act violates  the constitutional\tguarantee of
\nfreedom of  trade, commerce and intercourse throughout India
\nas enshrined  in Part  XIII of\tthe Constitution  and is not
\nsaved by  Art. 304.<\/a>  At one stage there was some controversy
\nwhether a  tax law was within the inhibition of Part XIII of
\nthe Constitution,  but\tthis  controversy  is  no  more\t res
\nintegra and  it has been set at rest by the majority view in
\nAtiabari Tea  Co.  Ltd.\t v.  The  State\t of  Assam  &  Ors.,
\nGajendragadkar, J.  speaking for the majority, observed that
\nthe intrinsic  evidence furnished by some of the Articles of
\nPart XIII  shows that  taxing laws are not excluded from the
\noperation of  Art. 301<\/a>\twhich means that tax laws can and do
\namount to  restrictions freedom\t from which is guaranteed to
\ntrade under  the said Part. He then posed a question whether
\nall  tax   laws\t attract   the\tprovisions   of\t Part\tXIII
\nirrespective of\t the fact  whether their  impact on trade or
\nits movement is direct and immediate or indirect and remote,
\nand proceeded to answer it observing that if any Act imposes
\nany direct  restrictions on  the very movement of such goods
\nit attracts the provisions of Art. 301<\/a> and
\n839<\/span>
\nits validity  can be  sustained only  if  it  satisfies\t the
\nrequirements  of   Art.\t 302<\/a>  or  Art.\t304<\/a>  of\t Part  XIII.
\nAccordingly,  the   contention\tthat  all  taxes  should  be
\ngoverned by Art. 301<\/a> whether or not their impact on trade is
\nimmediate or  mediate, direct  or remote, was negatived. The
\nmajority view  in Atiabari Tea Co. Ltd. case (Supra) was re-
\nexamined  and\taffirmed   in\tThe   Automobile   Transport
\n(Rajasthan) Ltd.  v. The  State of  Rajasthan & Ors. Das, J.
\nspeaking for the majority in this context observed as under:\n<\/p>\n
\t  “After   carefully   considering   the   arguments
\n     advanced before  us we have come to the conclusion that
\n     the narrow\t interpretation canvassed  for on  behalf of
\n     the majority  of the  State cannot be accepted, namely,
\n     that the  relevant articles  in Part XIII apply only to
\n     legislation in respect of the entries relating to trade
\n     and commerce  in  any  of\tthe  lists  of\tthe  Seventh
\n     Schedule. But  we must  advert here  to  one  exception
\n     which we  have already  indicated in an earlier part of
\n     this judgment.  Such  regulatory  measures\t as  do\t not
\n     impede the\t freedom of  trade, commerce and intercourse
\n     and  compensatory\t taxes\tfor   the  use\t of  trading
\n     facilities are  not hit by the freedom declared by Art.\n<\/p><\/blockquote>\n
     301.  They\t  are  excluded\t from  the  purview  of\t the
\n     provisions of  Part XIII  of the  Constitution for\t the
\n     simple reason  that they  do not hamper trade, commerce
\n     and intercourse but rather facilitate them”.<\/p><\/blockquote>\n
     The law was thus further clarified by pointing out that
\nall taxes should and could not be prohibited by Art. 301<\/a> and
\nmust of\t necessity for their sustenance seek the coverage of
\nArt. 304.<\/a>  If a measure is shown to be regulatory or the tax
\nimposed is compensatory in character meaning the tax instead
\nof hampering trade or commerce would facilitate the same, it
\nwould be  immune from  a challenge  under Art, 301. In other
\nwords, if  the tax  is shown to be compensatory in character
\nirrespective of\t the fact whether it is saved by Art. 304<\/a> or
\nnot it\tdoes not  come within  the inhibition  of Art.\t301.<\/a>
\nAccordingly, if\t validity of  a tax law is challenged on the
\nground that  it violates  freedom of  inter-State  commerce,
\ntrade  and   intercourse,  guaranteed\tby  Art.   301<\/a>,\t the
\ncontention may\tbe repelled  by showing\t (i) that the tax is
\ncompensatory in\t character as  explained in  The  Automobile
\nTransport (Rajasthan)  Ltd. case  (Supra); or  (ii) that  it
\nsatisfies the requirements of Art. 304.<\/a>\n<\/p>\n
     This very\tquestion came  up for further examination in
\nKhyerbari Tea  Co. Ltd.\t case (Supra) wherein constitutional
\nvalidity
\n840<\/span>
\nof Assam  Taxation (On\tGoods carried  by Road\tor on Inland
\nWater-ways) Act,  1961, was challenged on the ground that it
\nwas violative  of Art.\t301<\/a> and\t was not  saved by Art. 304.<\/a>
\nThis Court  analysed the  majority view\t in Atiabari Tea Co.
\nLtd. case  (Supra) and\tThe Automobile Transport (Rajasthan)
\nLtd., case (Supra) and observed as under:\n<\/p>\n
\t  “It would  immediately be  noticed that though the
\n     majority view  in the  Automobile Transport (Rajasthan)
\n     case substantially agreed with the majority decision in
\n     the case  of Atiabari  Tea Co.,  there would be a clear
\n     difference between\t the said  two views  in relation to
\n     the scope\tand effect of the provisions of Art. 304(b).<\/a>
\n     According to  the majority view in the case of Atiabari
\n     Tea Co.,  if an Act is passed under Art. 304(b)<\/a> and its
\n     validity is  impeached, then  the\tState  may  seek  to
\n     justify the  Act on  the ground  that the\trestrictions
\n     imposed  by   it  are  reasonable\tand  in\t the  public
\n     interest, and  in doing  so, it may, for instance, rely
\n     on the  fact that\tthe taxes levied by the impugned Act
\n     are compensatory  in  character.  On  the\tother  hand,
\n     according to  the majority\t decision in  the Automobile
\n     Transport Rajasthan  case, compensatory  taxation would
\n     be outside\t Art. 301<\/a>  and cannot, therefore, fall under
\n     Art. 304(b)”<\/a><\/p><\/blockquote>\n
     On a  conspectus of  these decisions  it  appears\twell
\nsettled that  if a tax is compensatory in character it would
\nbe immune from the challenge under Art. 301.<\/a> If on the other
\nhand the tax is not shown to be compensatory in character it
\nwould be  necessary for\t the party  seeking to\tsustain\t the
\nvalidity of  the tax  law to  show that\t the requirements of
\nArt. 304<\/a> have been satisfied.\n<\/p>\n
     The State\tdid not attempt in the High Court to sustain
\nthe validity  of the impugned tax law on the submission that
\nit was\tcompensatory in\t character. No\tattempt was  made to
\nestablish that\tthe dealers  in scheduled  goods in  a local
\narea would  be availing\t of municipal services and municipal
\nservices can  be efficiently  rendered if  the\tmunicipality
\ncharged with  a duty  to  render  services  has\t enough\t and
\nadequate funds\tand that  the impugned tax was a measure for
\ncompensating the  municipalities for  the loss of revenue or
\nfor augmenting\tits finances. As such a stand was not taken,
\nit is  not necessary  for us  to examine  whether the tax is
\ncompensatory in character.\n<\/p>\n
     It was, however, strenuously contended that the tax was
\nnot discriminatory in character inasmuch as the impugned tax
\nwas levied  both on  scheduled goods manufactured within the
\nState of  Karnataka and similar goods brought into Karnataka
\nState from  outside and\t accordingly Art.  304(a)<\/a>  has\tbeen
\ncomplied with. It was further urged
\n841<\/span>
\nthat the  requirements of  Art. 304(b)<\/a>\tare fully satisfied.
\nThe High  Court was of the opinion that the impugned tax was
\nnon-discriminatory in  character inasmuch as scheduled goods
\nimported from  other States  and scheduled goods produced or
\nmanufactured within  the State\tbut outside  the local\tarea
\nwere treated  alike by\tthe impugned  Act. In the opinion of
\nthe High  Court the  discrimination, if\t at all, was between
\ngoods produced or manufactured within a local area and those
\nbrought from outside the local area into it, but Art. 304(a)<\/a>
\nhas no relevance to such differential treatment.\n<\/p>\n
     Article 304<\/a> lifts the embargo placed on the legislative
\npower of  State to  enact law which may infringe the freedom
\nof inter-State\ttrade and  commerce if\tits requirements are
\nfulfilled. Article 304(a)<\/a> imposes a restriction on the power
\nof  legislature\t of  a\tState  to  levy\t tax  which  may  be
\ndiscriminatory\tin  character  by  according  discriminatory
\ntreatment to  goods manufactured  in the State and identical
\ngoods imported\tfrom outside  the State.  The effect of Art.
\n304(a)<\/a> is to treat imported goods on the same basis as goods
\nmanufactured or\t produced in  a State.\tThis article further
\nenables the  State to levy tax on such imported goods in the
\nsame manner  and to  the same extent as may be levied on the
\ngoods manufactured  or produced inside the State. If a State
\ntax law\t accords identical  treatment in  the matter of levy
\nand collection\tof tax\ton the goods manufactured within the
\nState and  identical goods  imported from outside the State,
\nArt. 304(a)<\/a>  would be  complied with. There is an underlying
\nassumption in Art. 304(a)<\/a> that such a tax when levied within
\nthe constraints\t of Art.  304(a)<\/a> would\tnot be\tviolative of
\nArt. 301<\/a>  and State  legislature has  the power to levy such
\ntax.\n<\/p>\n
     Tax under\tthe impugned  legislation would be levied on
\nscheduled  goods  either  manufactured\tor  produced  within
\nKarnataka State or imported from outside on their entry in a
\nlocal area.  Thus, this tax is non-discriminatory in that it
\ndoes not  discriminate between\tscheduled goods manufactured
\nor produced  within Karnataka  State or\t those imported from
\noutside. And  the microscopic  discrimination relied upon by
\nthe  respondents   that\t there\t is  differential  treatment
\naccorded to  goods produced  within a  local area  and those
\nimported from  outside the local area is hardly relevant for
\nthe purpose  of Art.  304(a).<\/a> The High Court was accordingly
\nright in  concluding that  the impugned\t tax  satisfies\t the
\nrequirements of Art. 304(a).<\/a>\n<\/p>\n
     The next  limb of\tthe contention\tis that the impugned
\ntax being  leviable on\tthe entry of goods into a local area
\nwill have  a direct  and immediate impact on the movement of
\ngoods and consequently would infringe freedom of inter-State
\ntrade guaranteed  by Art. 301.<\/a> It must for its validity also
\nsatisfy the requirements of Art. 304(b).<\/a> In order
\n842<\/span>
\nto satisfy  the requirements of Art. 304(b)<\/a> it must be shown
\nthat the  restrictions imposed by the tax law on inter-State
\nfreedom of  trade and  commerce are  reasonable and  are  in
\npublic interest\t as also the bill for the purpose of levy of
\nsuch  tax   has\t been  introduced  or  moved  in  the  State
\nlegislature with  the previous sanction of the President. To
\nthe extent  the impugned tax is levied on the entry of goods
\nin a  local area  it cannot  be gainsaid  that its immediate
\nimpact would  be on  movement of goods and the measure would
\nfall within  the inhibition of Art. 301.<\/a> Can it, however, be
\nsaid that  this tax  imposes restrictions which in the facts
\nand circumstances  of the  case could  not  be\tsaid  to  be
\nreasonable? It\twas contended  on behalf  of the respondents
\nthat the  tax not  being single\t point tax it would impose a
\nheavy burden  and a  very  burden  of  tax  would  certainly
\nconstitute unreasonable\t restriction on the freedom of trade
\nand commerce.\n<\/p>\n
     To substantiate  the contention  that  the\t Act  places
\nunreasonable restrictions  on the  freedom of  trade it\t was
\nsubmitted that it is a multi-point tax and in final analysis
\nthe burden  would be  disproportionately heavy.\t It was said
\nthat whenever goods are taken from one local area to another
\nlocal area  to third  local area at every point of entry the
\ntax would  be levied  and, therefore, in ultimate result the
\nburden would  be very  heavy so\t as to\tmake  it  thoroughly
\nunreasonable. Undoubtedly,  the tax  would have\t to be\tpaid
\nevery time when scheduled goods enter a local area. In other
\nwords, it  is not a single point tax and, therefore, if some
\nscheduled goods successively enter different local areas for
\nconsumption, use  or sale  therein, there  would be multiple
\nlevy. But no attempt was made to substantiate this charge by
\nshowing as  to how  goods are  taken from  one local area to
\nanother local  area to third local area for successive sales
\nbecause if  they are  taken for consumption or use, there is
\nno question  of taking\tthe scheduled  goods from  one local
\narea to\t another local\tarea. It is, therefore, difficult to
\nconceive a  situation realistically that the impost would be
\nvery heavy  so as  to make  it unreasonable.  The High Court
\nnegatived  the\t contention  and   in  our  opinion  rightly
\nobserving that\tthe petitioners\t have not  been able to show
\nthat the  burden of  the tax  was so  heavy as to constitute
\nunreasonable  restriction   on\tthe  freedom  of  trade\t and
\ncommerce. In  this connection,\thowever, reliance was placed
\non the\tdecision of this Court in Kalyani Stores v. State of
\nOrissa &  Ors. In<\/a>  that case  the State enhanced the duty in
\nrespect of  foreign liquors  from Rs.  40 to Rs. 70 per L.P.
\ngallon and  this levy  was challenged  on the ground that it
\ninfringed the  guarantee of Art. 301.<\/a> The State attempted to
\nsave the  levy by  contending that  it\twas  saved  by\tArt.
\n304(b).<\/a>\n<\/p>\n
843<\/span><\/p>\n
The Court  struck down\tthe levy  as being violative of Art.
\n301<\/a> observing as under:\n<\/p>\n
\t  “Article  301<\/a>\t  has  declared\t freedom  of  trade,
\n     commerce and  intercourse throughout  the territory  of
\n     India, and\t restriction on\t that freedom  may  only  be
\n     justified if  it falls  within Art. 304.<\/a> Reasonableness
\n     of the  restriction would\thave to\t be adjudged  in the
\n     light of  the purpose  for\t which\tthe  restriction  is
\n     imposed, that  is “as  may be  required in\t the  public
\n     interest”.\t Without   entering   upon   an\t  exhaustive
\n     categorization of\twhat may  be deemed “required in the
\n     public interest” it may be said that restrictions which
\n     may validly  be imposed  under Art.  304(b)<\/a>  are  those
\n     which seek to protect public health, safety, morals and
\n     property within the territory”.<\/p><\/blockquote>\n
     The later\tdecision has  shown that  the observation in
\nKalyani Stores\tcase is\t confined to the facts of that case.
\nThis would  be evident\tfrom the  decision of  this Court in
\nState of  Kerala v.  A.B. Abdul\t Khadir & Ors<\/a>. wherein it is
\nobserved that  in Kalyani  Stores case (Supra) the Court did
\nnot  intend   to  lay\tdown  a\t  proposition  of  universal
\napplicability that  the imposition of a duty or tax in every
\ncase would  tantamount per se to an infringement of Art. 301<\/a>
\nand  that   only  such\trestrictions  or  impediments  which
\ndirectly or  immediately impede free flow of trade, commerce
\nand intercourse\t would fall within the prohibition contained
\nin Art.\t 301.<\/a> Even  apart from this, a levy which appears to
\nbe quite  reasonable in\t its impact on the movement of goods
\nand is\timposed for  the  purpose  of  augmenting  municipal
\nfinances which\tsuffered a  dent on  account of abolition of
\noctroi cannot  be said to impose an unreasonable restriction
\non  the\t  freedom  of\tinter-State  trade,   commerce\t and
\nintercourse. In this connection it would be useful to recall
\nthe observations  of this  Court in  Khyerbari Tea  Co. Ltd.
\ncase that the power conferred on this Court to strike down a
\ntaxing statute if it contravenes the provisions of Arts. 14,
\n19 or  301 has\tto be exercised with circumspection, bearing
\nin mind\t that the  power of  the State to levy taxes for the
\npurpose of  governance and  for\t carrying  out\tits  welfare
\nactivities is  a necessary  attribute of  sovereignty and in
\nthat sense  it is  a power  of paramount  character. It\t is,
\ntherefore,  idle   to  contend\tthat  the  levy\t imposed  an
\nunreasonable  restriction   on\tthe  freedom  of  trade\t and
\ncommerce.\n<\/p>\n
     The next  question is  whether this  levy is  in public
\ninterest. As  has been\tpointed out earlier, the levy was to
\ncompensate the loss suffered by abolition of octroi.\n<\/p>\n
844<\/span><\/p>\n
without a  demur. After\t removing the  obnoxious features of
\noctroi a very modest impost is levied on entry of goods in a
\nlocal area  and that too not for further augmenting finances
\nof the municipalities but for compensating the loss suffered
\nby the\tabolition of  octroi is\t certainly a  levy in public
\ninterest. As has been repeatedly observed by this Court, the
\ntaxes generally\t are imposed  for raising public revenue for
\nbetter governance  of  the  country  and  for  carrying\t out
\nwelfare activities  of our  welfare State  envisaged in\t the
\nconstitution and,  therefore, even  if a  tax to some extent
\nimposes an  economic impediment\t to the activity taxed, that
\nby itself is not sufficient either to stigmatise the levy as
\nunreasonable or not in public interest.\n<\/p>\n
     The last limb of the argument is whether the proviso to
\nArt. 304(b)<\/a>  is satisfied  or not.  The proviso\t imposes  an
\nobligation  to\t obtain\t the  Presidential  sanction  before
\nintroducing the\t bill or amendment for the purpose of clause\n<\/p>\n
(b) of\tArt. 304<\/a> in the legislature of a State. It cannot be
\ngainsaid that  Presidential sanction was not obtained before
\nintroducing the\t bill which  was ultimately enacted into the
\nimpugned Act  but after the bill was enacted into an Act the
\nsame was submitted to the President for his assent and it is
\ncommon ground that the President has accorded his assent. If
\nprior  presidential   sanction\tis   a\tsine  qua  non,\t the
\nrequirement of\tthe proviso  is not  satisfied but  in\tthis
\ncontext it  would be advantageous to refer to Art. 255<\/a> which
\nprovides that  no Act of Parliament or of the Legislature of
\na State and no provision in any such Act shall be invalid by
\nreason only  that some\trecommendation or  previous sanction
\nrequired by the Constitution was not given if assent to that
\nAct was\t given by  the President.  Now, in  this case  it is
\ncommon ground  that the President did accord his sanction to
\nthe impugned  Act. Therefore, the requirement of the proviso
\nis satisfied.\n<\/p>\n
     To sum  up, the  impugned tax  is not discriminatory in
\ncharacter as  envisaged by  Art. 304(a)<\/a>\t and it\t does impose
\nrestrictions but the restrictions imposed are reasonable and
\nin public  interest and the Act subsequently having received
\nthe assent  of the  President, the proviso to Art. 304(b)<\/a> is
\ncomplied with  and, therefore,\tthe impugned Act is saved by
\nArt. 304<\/a>  and could not be struck down on the ground that it
\nwas violative  of Art.\t301.<\/a> The contention must accordingly
\nbe negatived.\n<\/p>\n
     Two minor\tsubsidiary points  were sought to be made en
\npassant by Mr. S. T. Desai and a brief mention of them would
\nbe in  order. It was urged that there is a certain amount of
\nvagueness in  s. 3<\/a>  inasmuch as\t no light  is thrown  by the
\nwords of  the section  or the other provisions of the Act on
\nthe question as to computation of tax to be
\n845<\/span>
\nmade at\t specified percentage  ad valorem without specifying
\nwhich price  is to  be taken  into consideration for levy of
\ntax, namely,  the sale\tprice or  the purchase\tprice of the
\nconcerned scheduled  goods. It\twas said that sale price and
\npurchase price\tof a  dealer would  be different  and in the
\nabsence of  any guideline  in the  charging section  or\t any
\nother provision\t in the\t Act  it  would\t lead  to  arbitrary
\ndetermination or  computation of  tax by taking “in one case
\nsale price  of the  scheduled  goods  and  in  another\tcase
\npurchase  price”.  The\tcontention  overlooks  the  specific
\nguideline to  be found\tin the\tcharging section itself. The
\ntaxing event  is the  entry of\tscheduled goods into a local
\narea. The  tax becomes\tpayable on  the entry  of  scheduled
\ngoods in a local area. Therefore, the price of the scheduled
\ngoods at  the time  of entry  paid by  the dealer who is the
\nimporter of  goods within the scheduled area would be the ad
\nvalorem price  on the  basis of which tax would be computed.
\nNo subsequent rise or fall in price has any relevance to the
\ncomputation of\tthe tax.  The charging section says that the
\ntax shall  be levied and collected on the entry of scheduled
\ngoods in  a local area at specified percentage not exceeding
\ntwo per\t cent  ad  valorem.  Therefore,\t the  price  of\t the
\nscheduled goods\t at the time when the tax becomes chargeable
\nirrespective of\t the fact  that it  would be  computed at  a
\nlater date when the dealer submits his return as required by
\nthe other  provisions of  the Act,  would be  the price\t for
\ncomputation of\ttax.  And  there  is  no  ambiguity  or\t any
\nvagueness in  this behalf.  There is thus specific guideline
\nin the\tcharging section  itself for taking into account the
\nprice according\t to which  tax would  be computed. The Hight
\nCourt negatived\t this contention  by observing that it would
\nbe open to the dealer to choose either the sale price or the
\npurchase  price\t  whichever  is\t  favourable  to   him\t for
\ncomputation of his liability to tax. This approach overlooks
\nthe specific  language of  s. 3<\/a> which clearly indicates what
\nprice is  to be\t taken into  account for  computing the tax.
\nWhen the goods are brought within the local area they have a
\ncertain price. The price may be the price which the importer
\nof goods has paid before bringing the goods within the local
\narea. Even  if the  dealer is the manufacturer of goods at a
\nplace outside the local area and brings the goods within the
\nlocal area  he must  have determined the price of the goods.
\nTherefore,  the\t dealer\t has  some  specific  price  of\t the
\nscheduled goods\t which are  being brought  within the  local
\narea at\t the time  of entry  in the local area and the entry
\nbeing the  taxing event\t that would be the price which alone
\ncan be\ttaken into account for computing the tax ad valorem.
\nTherefore, we  find it difficult to agree with the reasoning
\nadopted by  the High  Court in\trejecting the contention but
\nfor the\t reasons hereinabove  mentioned\t the  contention  is
\ndevoid of merits and accordingly it must be negatived.\n<\/p>\n
846<\/span><\/p>\n
     As we  are not  able to  uphold the  contentions  which
\nfound favour  with the\tHigh  Court  in\t striking  down\t the
\nimpugned Act  and the  notification issued thereunder and as
\nwe find no merit in other contentions canvassed on behalf of
\nthe respondents\t for sustaining\t the judgment  of  the\tHigh
\nCourt, this  appeal must succeed. Accordingly this appeal is
\nallowed and  the judgment  of the  High Court is quashed and
\nset aside  and the  petition filed  by the Respondent in the
\nHigh Court is dismissed with costs throughout.\n<\/p>\n
P.B.R.\t\t\t\t\t    Appeal allowed.\n847<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India State Of Karnataka & Anr vs M\/S. Hansa Corporation on 25 September, 1980 Equivalent citations: 1981 AIR 463, 1981 SCR (1) 823 Author: D Desai Bench: Desai, D.A. 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) […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-270408","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nState Of Karnataka & Anr vs M\/S. Hansa Corporation on 25 September, 1980 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/state-of-karnataka-anr-vs-ms-hansa-corporation-on-25-september-1980\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"State Of Karnataka & Anr vs M\/S. 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