PETITIONER:
K.M. MOHAMAD ABDUL KHADER FIRM
Vs.
RESPONDENT:
STATE OF TAMIL NADU & ORS.
DATE OF JUDGMENT16/10/1984
BENCH:
ERADI, V. BALAKRISHNA (J)
TULZAPURKAR, V.D.
MADON, D.P.
CITATION:
1985 AIR 12 1985 SCR (1) 980
1984 SCC Supl. 563 1984 SCALE (2)621
ACT
Tamil Nadu Additional Sales Tax Act, (Act II of 1976)- Legislative competence to levy Additional Tax in addition to the collection of surcharge under the Tamil nadu Sales Tax (Surcharge) Act, 1971-Whether the levy of graded rates violates Article 14 of the Constitution-Whether the levy of Additional Tax itself is violative of Articles 19 and 301 of the Constitution since it prohibits passing of the incidence of taxation to the consumer of goods-Constitution of India 1950 Article 14, 19 and 301
HEADNOTE
In Tamil Nadu the levy of the Sales Tax is regulated by the Tamil Nadu General Sales Tax Act, 1959. In the year 1970 the State Legislature enacted the Tamil Nadu Additional Sales Tax Act, (Act XIV of 1970) with effect from May 28, 1970. The scheme of section 2 of the Act was to levy the Additional Tax by the process of increasing the tax payable under the Act of 1959 by 10 percent the said increase representing the quantum of the Additional Tax. The proviso to Section stipulates for a concessional treatment in respect of the declared goods. In September, 1971 the State Legislature enacted the Tamil Nadu Sales Tax (Surcharge) Act, 1971. with retrospective effect from June, 1971. Under Section 3 of that Act every dealer liable to pay tax under the Act of 1959 was subjected to a further liability to pay surcharge at the rate of 5 per cent of such tax. In 1976 the Tamil Nadu Additional Sales Tax (Act II) of 1976 was passed amending and substituting Section 2 of the earlier Act providing for graded rates with a super added condition that the Additional Tax payable cannot be collected from the consumers, a contravention of which would attract penal action. On receipt of notices of demand issued consequent upon the assessment to Additional Sales Tax under the provisions of the Section as amended by the 1976 Act the petitioners have come up to the Court challenging the constitutional validity of the Act, 1976 and seeking to quash the assessment orders and the notices of demand issued to them.
Dismissing the Writ Petitions, the Court ^
HELD: 1- The contentions that the amended Section 2 of the Tamil Nadu Additional Sales Tax Act 2 of 1976 is devoid of legislative competence in as much as it imposes not a tax on sales but a tax on income, that the adoption 981 of slab system for determining tax liability is alien to the concept of Sales Tax that the levy of Additional Tax under the impugned enactment violates Articles 14 and 19 of the Constitution and that the provisions of the Act are violative of Article 301 of the Constitution are all totally devoid of merit. [991C-D]
M/s Pharma Associates and others v. State of Bihar, [1983] 4 S.C.C. 45: S. Kodar v. State of Kerala [1975] 1 S.C.R. 121 followed.
2. The constitutional validity of the levy of Additional Tax is not in any manner affected by the change brought about in the mode of levy and as a result of the amendments effected by the impugned Act. The impugned enactment has merely amended the 1970 Act. It has not introduced a new tax; what it has done is only to amend the 1970 Act by providing for different method of computation of the Additional Tax leviable under that Act by linking the rate of levy to the taxable turnover instead or to the amount of tax assessed under the Act of 1959. The nature and identity of the Additional Sales Tax imposed by the 1970 Act have not been in any way altered by the impugned Act. [985F;C;E;D]
S. Kodar v. State of Kerala, [1975] 1 S.C.R. 121 referred to.
JUDGMENT
ORIGINAL JURISDICTION: Writ Petition (Civil) Nos. 4358 of 1978, 212-213, 760 of 1979 and 6449 of 1980.
Under article 32 of the Constitution of India
S.N. Kacker and A.T.M. Sampath for the Petitioner in W.P. Nos. 212-213 of 1980.
A.K. Sen, A.T.M. Sampath and P.N. Ramalingam for the Petitioner in W.P. No. 760 of 1979.
A.T.M. Sampath and P.N. Ramalingam for the Petitioner in W.P. Nos. 4358 of 1978 and 6449 of 1980.
S.T. Desai and A.V. Rangam for the Respondent.
The Judgment of the Court was delivered by
BALAKRISHNA ERADI, J. in these Writ Petitions, the petitioners have challenged the constitutional validity of the provisions of Tamil Nadu Additional Sales Tax Act 1976 (Act 2 of 1976). By the said Act section 2 of the Tamil Nadu Additional Sales Tax Act, 1970 was amended by substituting a new provision in the place of what existed before, section 3 was omitted and section 3A was newly introduced to the Act. As the points raised in all these Writ Petitions are identical, they were heard together and are disposed of by this common judgment. 982
Before we proceed to set out the provisions of the impugned Act, it is necessary to narrate in brief the legislative history that preceded its enactment. The basic statute providing for the levy of Sales tax in the State of Tamil Nadu is the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act of 1959") In the year 1970, the State Legislature enacted the Tamil Nadu Additional Sales Tax Act-Act 14 of 1970 (hereinafter called the 1970 Act)-which was brought into force with effect from May 28, 1970. The said Act provides for the levy of an additional tax on the sale or purchase of goods. Section 2 of the Act which is the charging section was in the following terms:-
"2. Levy of additional tax in the case of certain
dealers:-(1) The tax payable under the Tamil Nadu
General Sales Tax Act, 1959 (Tamil Nadu Act of 1959)
(thereafter in this section referred to as the said
Act), shall in the case of a dealer whose total
turnover for a year exceeds ten lakhs of rupees, be
increased by an additional tax at the rate of (ten per
cent) of the tax payable by that dealer for that year
and the provision of the said Act shall apply in
relation to the said additional tax as they apply in
relation to the said tax payable under the said Act.
Provided that where in respect of declared goods
as defending clause (h) of section of the said Act, the
tax payable by such dealer under the said Act together
with the additional tax payable under this sub-section,
exceeds (four percent) of the sale or purchase price
thereof, the rate of additional tax in respect of such
goods shall be reduced to such an extent that the tax
and the additional tax together shall not exceed (four
per cent) of the sale or purchase price of such goods."
It will be noticed that the scheme of this section was to levy the additional tax by the process of increasing the tax payable under the Act of 1959 by ten per cent the said increase representing the quantum of the additional tax. The proviso to the section stipulates for a concessional treatment in respect of the declared goods. It is unnecessary for us to deal with the said proviso or with section 3 of the said Act as these provisions have no relevance to the determination of the point raised in the cases now before us. 983
In September, 1971, the State Legislature enacted the Tamil Nadu Sales Tax (Surcharge) Act, 1971 with retrospective effect from June, 1971. Under section 3 of that Act, every dealer liable to pay tax under the Act of 1959 was subjected to a further liability to pay a surcharge at the rate of five per cent of such tax. The first proviso to the said section states that in the city of Madras the rate of surcharge shall be ten per cent for the period commencing on the June 19, 1971 and ending with the June 28, 1971. The second proviso extended certain concessions in the rate of surcharge in respect of declared goods.
Thereafter followed the impugned statute namely, the Tamil Nadu Additional Sales Tax (Act 2) of 1976, which was brought into force with effect from 1.4.1976. Section 2 of the said Act amended section 2 of the Tamil Nadu Additional Sales Tax Act, 1970 by substituting the following provision in replacement of the original section:
"2. Levy of additional tax in the case of certain
dealers-
1. (a) The tax payable under the Tamil Nadu General
Sales Tax Act, 1959 (Tamil Nadu Act I of 1959)
(hereinafter in this section referred to as the
said Act), shall, in the case of a dealer whose
taxable turnover for a year exceeds three lakhs of
rupees, be increased by an additional tax
calculated at the following rates, namely:-
Rate of tax
(i) Where the taxable turnover exceeds 0.4 per cent
of three lakhs of rupees but does the taxable
not exceed five lakhs of rupees. turnover.
(ii) Where the taxable turnover exceeds 0.5 percent
five lakhs of rupees but does not of the tax-
exceed seven lakhs of rupees. able turnover.
(iii)Where the taxable turnover exceeds 0.6 percent
seven lakhs of rupees but does not of the
exceed ten lakhs of rupees. taxable
turnover.
(iv) Where the taxable turnover exceeds 0.7 percent
ten lakhs of rupees of the taxable
turnover. 984
Provided that where in respect of declared goods
as defined in clause (h) of section 2 of the said
Act, the tax payable by such dealer under this
said Act, together with the additional tax payable
under this sub section, exceeds four per cent of
the sale or purchase price thereof, the rate of
additional tax in respect of such goods shall be
reduced to such an extent that the tax and the
additional tax together shall not exceed four per
cent of the sale or purchase price of such goods.
(b) The provisions of the said Act Shall apply in
relation to the additional tax payable under
clause (a) as they apply in relation to the tax
payable under the said Act.
(2) Notwithstanding anything contained in the said Act
no dealer referred to in sub-section (1) shall be
entitled to collect the additional tax payable
under the said sub-section.
(3) Any dealer who collects the additional tax payable
under sub-section (1) in contravention of the
provisions of sub-section (2) shall be punishable
with fine which may extend to one thousand rupees,
and no Court below the rank of a Presidency
Magistrate or a Magistrate of the First Class
shall try any such offence."
While under the provisions of section 2 as they stood prior to the amendment, the additional sales tax was to be calculated and levied at a certain percentage of the tax assessed on the dealer under the Act of 1959, the scheme of the amended section is to adopt the taxable turnover of the dealer as the base for the levy of the additional tax, the rate or percentage to be applied for calculation of the additional tax depending upon the quantum of the taxable turnover and the slab into which the case of a particular dealer will fall on the basis of the specification of the slab limits indicated in the section.
On receipt of notices of demand issued consequent upon assessments to additional sales tax under the provisions of the section as amended by the impugned Act the petitioners have 985 come up to this Court challenging the constitutional validity of the impugned Act of 1976 and seeking to quash the assessment orders and the notices of demand issued to them.
The first contention urged on behalf of the petitioners is that since the State Legislature had already provided for the levy of a tax on sales by the Act of 1959 and had also enacted a further statute authorising the levy and collection of a surcharge which is in truth and substance the imposition of an additional sales tax, it could not legally go on legislating further enactments providing again for levy of additional sales tax. On this basis it is contended that the provisions of the impugned Act, 1976 are ultra vires and devoid of legislative competence. We see no substance in this contention. The impugned enactment has merely amended the 1970 Act. It has not introduced a new tax; what it has done is only to amend the 1970 Act by providing for a different method of computation of the additional tax leviable under that Act. The validity of the 1970 Act has been upheld by a Constitution Bench of this Court in the case of S. Kodar v. State of Kerala. Hence there is no longer any scope for the petitioners to contend that the State Legislature had no competence to provide for the levy of additional sales tax. The nature and identity of the additional sales tax imposed by the 1970 Act have not been in any way altered by the impugned Act. As already pointed out what has been done by the impugned Act is only to provide for a different mode of computation of the additional sales tax by linking the rate of levy to the taxable turnover instead of to the amount of tax assessed under the Act of 1959. The constitutional validity of the levy of additional tax is not in any manner affected by the said change brought about in the mode of levy and computation as a result of the amendments affected by the impugned Act.
It was strongly contended on behalf of the petitioners that the prescription of different rates of additional sales tax depending upon the quantum of turnover of the different assessees is totally repugnant to the concept of levy of tax on sales. Another argument advanced by Counsel for the petitioners was that since under the amended provisions of section 2, two dealers selling the same commodity will be liable to pay additional tax at different rates depending upon their respective annual turnovers, there is a clear violation of Article 14 of the Constitution as dissimilar treatment similarly situated. A further contention 986 urged on behalf of the petitioners was that the levy in its present from is really a tax on ’gross income’ and not a tax on ’sales’ and hence it is ultra vires the State Legislature as it has no competence to levy a tax on income other than agriculture income. Another ground of attack pressed by Counsel was that the levy of additional sales tax under the impugned Act is confiscatory in nature, that it impose unreasonable restrictions on the petitioners right to carry on business and offends Article 19 of the Constitution, particularly in view of the prohibition contained in subsection (2) of section 2 against collection of additional tax from the consumers. Yet another point taken in the Writ Petitions but not very seriously urged at the time of hearing is that the levy of additional tax under the impugned Act offends Article 301 of the Constitution since the imposition of the additional liability would seriously affect the business of the petitioners and on account of their inability to bear the heavy burden their right to carry on freely trade, commerce and intercourse within the territory of India will be adversely affected.
We are spared the necessity of dealing with any of the aforesaid points in depth because everyone of them is fully covered by pronouncement of a Constitution Bench of this Court in S. Kodar v. State of Kerala afore-cited.
The contention that the additional sales tax levied under the Tamil Nadu Additional Sales Tax Act, 1970 was not a tax on sales but was in reality a tax on the income of the dealers was rejected by the Constitution Bench which observed thus:
" As regards the contention that the State
Legislature has no power to pass the measures, we are
of the view that additional tax is really a tax on the
sale of goods. The object of the Act, as is clear from
its provisions, is to increase the tax on the sale or
purchase of goods imposed by Tamil Nadu General Sales
Tax Act, 1959 and the fact that quantum of the
additional tax is determined with reference to the
sales tax imposed would not alter its character it may
be noted that additional tax is to be imposed only if
the turnover of a dealer exceeds Rs. 10 lakhs. It is in
reality a tax on the aggregate of sales effected by a
dealer during a year. The additional tax, there- 987
fore, is an enhancement in the rate of the sales tax
when the turnover of a dealer exceeds Rs. 10 lakhs a
year and it is a tax on the aggregate of the sales
affected by the dealer during the year. The decision in
Ernakulam Radio Company v. State of Kerala which was
affirmed by a Division Bench of the Kerala High Court
in Kiliker v. Sales Tax Officer took that view. The
same view was taken by the Andhra Pradesh High Court in
A.S. Ramachandra Rao v. State of Andra Pradesh. This is
the correct view. Entry 54 in List II authorises the
state legislature to impose a tax on the sale or
purchase of goods. So, the contention of the appellants
that the additional sales tax is not a tax on sales but
on the income of the dealer is without any basis.
The further plea that the levy of additional tax also was confiscatory in nature and the prohibition against passing on the burden to the consumers was an unreasonable restriction was also negatived by this Court by stating:-
"As regards the second contention that the
provisions of the Act are violative of the fundamental
rights of the appellants under article 19 (1) (f) and
19 (1) (g), as the tax is upon the sale of goods and is
not shown to be confiscatory, it cannot be said that
the provisions of the Act impose any unreasonable
restrictions upon the appellants’ right to carry on
trade. It is, no doubt, true that every tax imposes
some restriction upon the right to carry on a business;
but it would not follow that the imposition of the tax
in question is an unreasonable restriction upon the
appellants fundamental right to carry on trade.
Generally speaking, the amount or rate of a tax is a
matter exclusively within the legislative judgment and
as long as a tax retains its avowed character and does
not confiscate property to the State under the guise of
tax, its reasonableness is outside the judicial ken.
But it was contended that as the dealer is
prohibited from passing on the incidence of tax to the
purchaser, 988
the additional tax, unlike sales tax, is a tax on
income of the dealer which he must pay whether he makes
any pro fit or not and is, therefore, an unreasonable
restriction on his fundamental rights under article 19
(1) (g).
The legal incidence of tax on sale of goods under
the Tamil Nadu General Sales Tax, 1959 falls squarely
on the dealer. It may be that he can add the tax to the
price of the goods sold and thus pass it on to the
purchaser. But it is not necessary that the dealer
should be enabled to pass on the incidence of the tax
on sale to the purchaser in order that it might be a
tax on sales of goods.
In J. K. lute Mills Co. v. State of U.P. this
Court said, although it is true that sales tax is,
according to accepted notions, intended to be passed on
to the buyer, and provisions authorising and regulating
the collection of sales tax by the seller from the
purchaser are a usual feature of sales tax legislation,
it is not an essential characteristic of a sales tax
that the seller must have the right to pass it on to
the consumer, not is the power of the legislature to
impose a tax on sales conditional on its making a
provision for sellers to collect the tax from the
purchasers.
In Konduri Buchirajalingam v. State of Hyderabad
this Court said:
"It is then said that the sales tax is essentially
an indirect tax and therefore it cannot be demanded of
the appellant without allowing him to recoup himself by
collecting the amount of the tax from the persons with
whom he deals. This Court has already decided in the
case of Tata Iron and Steel Co. Limited v. State of
Bihar (1958) 9 S.T.C. 267 that in law a sales tax need
not be an indirect tax and that a tax can be a sales
tax though the primary liability for it is put upon a
person without giving him any power to recoup the
amount of the tax pay able, from any other party." 989
As we said, the additional tax is a tax upon sales
of goods and not upon the income of a dealer and so
long as it is not made out that the tax is
confiscatory, it is not possible to accept the
contention that because the dealer is disabled from
passing on the incidence of tax to the purchaser, the
provisions of the Act impose an unreason able
restriction upon the fundamental rights of the
appellants under article 19 (1) (g) or 19 (1) (f).
Dealing with the contention that since the provisions of the Act imposed different rates of tax on different dealers depending upon their turnover there was a violation of Article 14 of the Constitution, Mathew J. who spoke for the Court observed:
"The last contention namely that the provisions of
the Act impose different rates of tax upon different
dealers depending upon their turnover which in effect
means that the rate of tax on the sale of goods would
vary with the volume of the turnover of a dealer and
are, therefore, violative of article 14 is also without
any basis. Classification of dealers on the basis of
their respective turnover for the purpose of graded
imposition so long as it is based on differential
criteria relevant to the legislative object to be
achieved is not unconstitutional. A classification,
depending upon the quantum of turnover for the purpose
of exemption from tax has been upheld in several
decided cases. By parity of reasoning, it can be said
that a legislative classification making the burden of
the tax heavier in proportion to the increase in
turnover would be reasonable. The basis is that just as
in taxes upon income or upon transfers at death, so
also in imposts upon business, the little man, by
reason of inferior capacity to pay, should bear a
lighter load of taxes, relatively as well as
absolutely, than is borne by the big one. The flat rate
is thought to be less efficient than the graded one as
an instrument of social justice. The large dealer
occupies a position of economic superiority by reason
of his greater volume of his business. And to make his
tax heavier, both absolutely and relatively, is not
arbitrary discrimination, but an attempt to proportion
the payment to capacity to pay and thus to arrive in
the end at a more genuine equality. The economic wisdom
of a tax is within the exclusive province. 990
of legislature. The only question for the court to
consider is whether there is rationality in the belief
the legislature that capacity to pay the tax increases,
by and large, with an increase of receipts.
"Certain it is that merchants have faith in such a
correspondence and act upon that faith. If experience
did not teach that economic advantage goes along with
larger sales, there would be an end to the hot pursuit
for wide and wider markets .....In brief, there is a
relation of correspondence between capacity to pay and
the amount of business done. Exceptions, of course,
there are. The law builds upon the probables, and
shapes the measure of the tax accordingly...... At the
very least, an increase of gross sales carries with it
an increase of opportunity for profit, which supplies a
rational basis for division into classes, at all events
when coupled with evidence of a high degree of
probability that the opportunity will be fruitful".
(See the dissenting judgment of Justice Cardozo.
Justice Brandeis and Justice Stone)
The reasoning of the minority in that case appeals to us as more in consonance with social justice in an egalitarian state than that of the majority.
As we said, large dealer occupies a position of
economic superiority by reason of his volume of
business and to make the tax heavier on him both
absolutely and relatively is not arbitrary
discrimination but an attempt to proportion the payment
to capacity to pay and thus arrive in the end at a more
genuine equality. The capacity of a dealer, in
particular circumstances, to pay tax is not an
irrelevant factor in fixing the rate of tax and one
index of capacity is the quantum of turnover. The
argument that while a dealer beyond certain limit is
obliged to pay higher tax, when others bear a less tax,
and it is consequently discriminatory, really misses
the point namely that the former kind of dealers are in
a position of economic superiority by reason of their
volume of business and form a class by 991
themselves. They cannot be treated as on a part with
comparatively small dealers. An attempt to proportion
the payment to capacity to pay and thus bring about a
real and factual equality cannot be ruled out as
irrelevant in levy of tax on the sale or purchase of
goods. The object of a tax is not only to raise revenue
but also to regulate the economic life of the society".
The same principles have been recently reiterated by a Three Judge Bench of this Court in the case of M/s Pharma Associates and others v. State of Bihar and Ors. In the light of the aforesaid pronouncements, it is manifest that the contention put forward by the petitioners that the impugned enactment is devoid of legislative competence inasmuch as it imposes not a tax on sales but a tax on income, that the adoption of a slab system for determining tax liability is alien to the concept of sales tax and that the levy of additional tax under the impugned enactment violates Articles 14 and 19 of the Constitution are all totally devoid of merit. We do not also see any substance in the plea raised in the Writ Petitions that the provisions of the impugned Act are violative of Article 301 of the Constitution.
In the result, all these Writ Petitions fail and are dismissed with costs. S.R. Petition dismissed. 992