P. Chandra Reddy, C.J.
1. The constitutionality of Section 8 of the Central Sales Tax Act (LXXIV of 1956) (hereinafter to be called the Act for the sake of convenience) is challenged in these petitions.
2. Most of the petitioners carry on business in jaggery and export it to several States in the country, the others being dealers either in groundnut oil, rice or niger seeds. While submitting returns, they claimed exemption in respect of the part of the turnover covering sales of inter-State character on the plea that the tax had already been paid on the first sales. The exemption was disallowed on the ground that tax was leviable as the sales were subject to tax under Section 8 of the Central Sales Tax Act. Impugning the order of the assessing authorities, the aggrieved assessees have put in these petitions.
3. The principal contention pressed upon us is that Section 8 of the Central Act, which enables the revenue to tax transactions in respect of which single point tax alone was leviable under the State law, is unconstitutional in that it is violative of the equal protection of laws embodied in Article 14 of the Constitution. It is maintained that, by reason of Section 8 , while dealers in several kinds of goods in some of the States are exempt from sales tax, dealers in the same commodities in this State are liable to pay tax on their inter-State sales, notwithstanding the fact that tax is leviable on these goods in this State only at a single point and in fact tax was collected in the State on the first sales. Consequently dealers of one State are given preference over those of another and this amounts to a discrimination which is not permissible under Article 14 of the Constitution. The assessees of other States carrying on business in the same commodities enjoy an advantage over those of the State of Andhra Pradesh and this constitutes denial of the equal protection of laws to assessees of this State similarly situated, continues the counsel for the petitioners.
4. For an appreciation of these points, it is useful to extract the relevant provisions of the Central Act and the Andhra Pradesh General Sales Tax Act (hereinafter to be called the State Act).
5. Section 8 of the Central Act, in so far as it is material for the purpose of this enquiry says :
(i) Every dealer who, in the course of inter-State trade or commerce, sells to a registered dealer goods of the description referred to in Sub-section (3) shall be liable to pay tax under this Act, which shall be one per cent, of his turnover :
Provided that, if under the sales tax law of the appropriate State, the sale or purchase of any goods by a dealer is exempt from tax generally and not in specified cases or in specified circumstances or is subject to tax (by whatever name called) at a rate or rates which is or are lower than the rate specified in Sub-section (1), the tax payable under this Act on the turnover in relation to the sale of such goods in the course of inter-State trade or commerce shall be nil or shall be calculated at the lower rate, as the case may be,
(2) The tax payable by any dealer in any case not falling within Sub-section (1) in respect of the sale by him of any goods in the course of inter-State trade or commerce shall be calculated at the same rates and in the same manner as would have been done if the sale had, in fact, taken place inside the appropriate State, and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law.
* * * *(4) The provisions of Sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling' the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold, containing the prescribed particulars on a prescribed form obtained from the prescribed authority.
6. The proviso to Sub-section (1) was recast as Section 8(2-A) with an additional Explanation. It is unnecessary to notice the other changes effected by this amendment.
8. (2-A) Notwithstanding anything contained in Sub-section (1) or Sub-section (2), if under the sales tax law of the appropriate State the sale or purchase, as the case may be, of any goods by a dealer is exempt from tax generally or is subject to tax generally at a rate which is lower than one per cent, (whether called a tax or fee or by any other name), the tax payable under this Act on his turnover in so far as the turnover or any part thereof relates to the sale of such goods shall be nil or, as the case may be, shall be calculated at the lower rate.
Explanation.-For the purposes of this sub-section, a sale or purchase of goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate State if under that law it is exempt only in specified circumstances or under specified conditions or in relation to which the tax is levied at specified stages or otherwise than with reference to the turnover of the goods.
7. Section 8 , as amended, contemplates three categories of exemptions. The State Act has made provision for these three types of exemptions in the shape of Sections 8 , 9 and 5(3)(a). Section 8 recites:
Subject to such restrictions and conditions as may be prescribed including conditions as to licences and licence fees, a dealer who deals in the goods specified in the Fifth Schedule shall be exempt from tax under Section 5 in respect of such goods.
8. Section 9 confers powers on the State Government to notify exemptions and reduction of tax. Operating under this section, Government exempts by notification the tax payable on the sale or purchase of any specified class of goods, at all points or at any specified point or points in the series of sales or purchases by successive dealers or by any specified class of persons in regard to the whole or any part of the turnover and these exemptions may be subject to such restrictions and conditions as may be set out in the notification.
9. Under Sub-section 3(a) of Section 5, the tax shall be levied :
In the case of the goods mentioned in the Second Schedule at the rates and only at the point of the sale specified as applicable thereto effected in the State by the dealer selling them, on his turnover of sales in each year relating to such goods irrespective of the quantum of turnover.
10. Schedule II enumerates the goods which fall within the ambit of Sub-section (3). Clause (b) of Sub-section (3) makes a similar provision in regard to the levy of purchase tax on the goods specified in Schedule III.
11. The petitioners here deal in commodities described either in Schedule II or III in regard to which tax is leviable only at a single point, namely, on the occasion of the first sale or purchase.
12. Section 8 of the Act, while granting exemption to merchants who are generally exempted from tax under the State Act, or under provisions similar to that under other laws of other States, excluded partial exemption from its scope. The petitioners complain that, as a result of the impact of the impugned section, their business is adversely affected for the following reasons. Jaggery and the commodities in which these petitioners deal are altogether exempt from tax under the General Sales Tax laws of certain States while the same goods are subject to tax at a single point under the State Act. However, having regard to the scheme of Section 8 , such goods in this State are liable to pay tax, while merchants similarly situated in other States enjoy exemption, the consequence of which is that the petitioners are unable to compete with dealers in similar goods of other States who could sell their goods at comparatively lower rates by virtue of the privilege granted to them by Section 8 . Thus, Section 8 discriminates between one class of dealers and another of India giving preference to the one over the other. This discrimination offends against Article 14 of the Constitution. A State has to distribute the tax burden evenly and should not place merchants of one State in an advantageous position as against those of another State. Persons having common property and common characteristics should be meted out equal treatment, continued the counsel for the petitioners. The learned counsel also contended that taxing statutes are also subject to the test of the equality clause and the equal protection of laws. In judging whether a particular statute is violative of Article 14 of the Constitution, a practical assessment of the operation of the law should be made, i.e., to see whether it results in practice in inequality between one citizen and another.
13. In examining these arguments, it is useful to bear in mind the historical background of this law. In exercise of the powers conferred by Entry 48 of the Government of India Act, several Provinces of India passed General Sales Tax laws for the purpose of augmenting their revenues. They brought within taxing laws transactions substantially outside the territorial limits of their authority, picking out one or more ingredients constituting a sale as deciding the place of sale. These enactments led to multiple taxation of the same sale by different Provinces, each Province seeking to rely upon some ingredient of the sale within its jurisdiction as establishing a territorial nexus. Consequently, the Constitution, while investing the States with the same authority to make laws providing for a tax on the sale or purchase of goods other than newspapers by inserting Entry 54 in the State List, subjected these powers to certain restrictions under Article 286 of the Constitution. Under Clause (1) of that Article, a State was prohibited from imposing a tax when the sale or purchase takes place outside the State or in the course of import into or export from the country. As regards the non-taxability of sales outside the State, the Explanation stated that a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State. Clause (2) of that Article debarred a State from levying tax on inter-State sales except in so far as Parliament might otherwise provide. Clause (3) authorised Parliament to declare the goods which are essential to the life of the community. When such a declaration was made, any law made by a State Legislature imposing a tax on the sale or purchase of those goods had to obtain the assent of the President in order to be effective.
14. The interpretation of this Article led to divergence of views by the highest judicial tribunal. In State of Bombay v. United Motors (India] Ltd. [1953] S.C.R. 1069, the majority view of the Supreme Court was that while Sub-clause (a) and the Explanation in Clause (1) prevented taxation of a sale involving inter-State elements by all States except the State in which the goods were delivered for the purpose of consumption therein, -Clause (2) did not affect the power of that State to tax inter-State sale even though Parliament had not made a law removing the ban created by that clause. Sometime later a Fuller Bench of the Supreme Court reversed the second principle embodied in the United Motors case, [1953] S.C.R. 1069 in the Bengal Immunity Company Lid. v. The State of Bihar [1955] 6 S.T.C. 446 which laid down that Clauses (1) and (2) contained two independent bans and that no State could levy a tax on sales in the course of inter-State trade or commerce so long as the bans were not removed by Parliament.
15. Meanwhile, the Parliament passed an Act in exercise of the powers derived from Clause (3) of Article 286 in 1952 declaring a number of goods like foodstuffs of various kinds, cloth, raw cotton, cattle feeds, iron and steel, coal etc., to be essential to the life of the community. This resulted in a wide disparity from State to State both in the range of exempted goods and in the rates applicable to them.
16. This created a difficult situation for the States in the realisation of revenue from taxes on sales and purchases of goods. Subsequently, the Taxation Enquiry Commission examined these problems and made certain recommendations to Parliament. The Parliament, acting as Constituent Assembly and accepting these recommendations, made -certain amendments to the Constitution. A new Entry 92-A was added to the Union List placing taxes on the sale and purchase of goods other than newspapers within the exclusive legislative and executive power of the Union and making Entry 54 of the State List subject to the provisions of the new entry. Article 286 was also suitably amended by omitting the Explanation in Clause (1), and Clauses (2) and (3) were substituted by the following clauses :-
(2) Parliament may by the law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Clause (1).
(3) Any law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.
17. Similarly, Article 269 was amended by adding taxes to the list given therein in the form of Clause (g) which runs thus :
Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.
18. Clause (2) was inserted in that Article providing that the taxes levied and collected in accordance with the Act of Parliament would not form part of the Consolidated Fund of India but would accrue to the States in accordance with such principles of distribution as may be formulated by Parliament by law. A further provision was made by which Parliament was empowered to formulate principles to determine when a sale or purchase of goods takes place in the course of inter-State trade or commerce. By reason of these amendments, it fell within the competence of Parliament to make legislation for levying taxes on inter-State sales.
19. Pursuant to this authority, Parliament passed the Central Sales Tax Act, 1956. Chapter II of the Act contains the rules to determine when a sale or purchase of goods takes place in the course of inter-State trade or commerce, or outside a State or in the course of import or export. Section 6 occurring in Chapter III is the charging section. Section 8 , as already noticed, inter alia fixes the rates of taxes and also provides for exemptions in certain cases. Section 9 envisages the employment of the machinery set up by the States for the purpose of levying and collecting the tax. Subject to the specific provisions of that Act and the rules made thereunder, all the provisions of the General Sales Tax laws of the appropriate States would apply to proceedings under the Act. We may here extract Sub-section (3) of Section 9 as it throws light on the position of the centre vis-a-vis the State in the matter of the levy and collection of tax.
The proceeds (reduced by the cost of collection) in any financial year of any tax levied and collected under this Act in any State on behalf of the Government of India shall, except in so far as those proceeds represent proceeds attributable to Union territories, be assigned to that State and shall be retained by it; and the proceeds attributable to Union territories shall form part of the Consolidated Fund of India.
20. It is plain that in imposing and collecting the tax on inter-State sales, the Union Government acts as the agent of the respective States and also uses the administrative set up of the various States under their Sales Tax laws for the levy and the collection thereof. Apparently, the Act has been passed with a view to enable the State Governments to raise additional revenues by levying tax on inter-State transactions, while under the State laws these transactions were immune from tax. It is in this context that we have to view the question as to how Article 14 impinges on Section 8 .
21. Section 8 adopted the broad classification of goods : those that are completely exempted from tax and those that are partially exempted, and accepted for the purpose of exempting goods of the former kind and eschewed those of the latter. In evolving this formula, Parliament has taken into account the laws of different States which have selected certain class of goods for general exemption and certain others for partial exemption, such as those envisaged by Sections 9 and 5(3) of the State Act. Since the Central Government was acting only for the States in the matter of levy and collection of these taxes, the Act had to select the goods, which were subject to tax in those States for the levy of tax on inter-State sales. The States were the best judges on the question as to what goods or commodities should be generally exempted in order to give protection and to stimulate trade with regard to those commodities. They appear to have made the classification on a consideration of the local needs. The section has merely accepted the selection devised by the different States. It does not by itself purport to make any classification.
22. Hence, we do not find anything in the subject-matter of the Act or in the mode of dealing with it which savours of discrimination between the citizens of one State and those of another. It enunciates the one common and uniform principle applicable to all States, viz., that any class of goods which was immune from taxation in any State is exempted under Section 8 . It may be that the same class of goods may not be exempt in all the States. A specified category of goods may be generally exempt in one State, while another category of goods may be exempt from tax in another State. The section in controversy does not concern itself with the classification of goods for the purpose of granting exemption but merely recognises the total exemption that is granted by all the States and excludes from the operation of the section certain goods in specified circumstances or specified conditions. It puts every State on the same footing, leaving it to each of them to decide as to which of the goods should be completely exempted or not. So, the discrimination, if any, is not traceable to Section 8 but to the difference existing in the laws of the different States. In this premises, it is difficult to postulate that Section 8 suffers from the vice of discrimination and that Article 14 has been violated.
23. In this connection, we may usefully cite the pronouncement of the Privy Council in Colonial Sugar Refining Co., Ltd. v. Irving [1906] A.C. 360. One of the questions that posed itself before their Lordships was whether Section 5 of the Excise Tariff Act, which granted exemption from duties thereby imposed on goods on which customs or excise duties had been paid under State legislation, was discriminatory in effect inasmuch as the scale of duties differed in several States, while no duty was imposed , on sugar in some of the States and the exemption operated unequally on the traders and manufacturers of the several States. It was contended, inter alia, before their Lordships that the grant of such an exemption was a discrimination between the States within the meaning of the Australian Constitution. The Privy Council repelled this argument, observing that:
The rule laid down by the Act is a general one, applicable to all the States alike and the fact that it operates unequally in the several States arises not from anything done by the Parliament but from the inequality of the duties imposed by the States themselves. The exemption from the new excise duties on the ground of previous payment of customs duties seems justifiable and right in establishing a system based on the absolute freedom of trade among the States.
24. The principle enunciated by their Lordships applies with full vigour to the present situation. The rule contained in Section 8 is applicable to all the States alike operating equally in regard to every State and if in practice its effect is uneven with regard to dealers in a particular category of goods, it is not because of this section but because of the inequalities in the laws of different States in regard to the different categories of commodities.
25. Our view also is reinforced by the doctrine underlying Ramjilal v. Income-tax Officer, Mohindargarh [1951] 19 I.T.R. 174. In the cited case, there was no Income-tax Act prevalent in the State of Nabha, which was integrated in the Patiala and East Punjab States Union, while Kapurthala, another component State, had its own Income-tax Act. After the integration, the residents of the Nabha State were assessed to income-tax under the law of the Pepsu Union in respect of a particular year, while the residents of Kapurthala State were assessed under the Kapurthala State law, the rates in the latter State being lower than those fixed in the law of the Pepsu State. The residents of Kapurthala were to be assessed according to the law of that State as the proceedings against them were pending on the date of the integration and as the pending proceedings were to be disposed of according to the laws governing such proceedings in force in any such integrating State immediately before 20th of August, 1948 [by reason of Section 3(1) of the Patiala and East Punjab States Union General Provisions (Administration) Ordinance]. It was argued, inter alia, that these Ordinances operated to discriminate between the residents of Nabha and those of Kapurthala and as such it constituted an infraction of Article 14 of the Constitution. This contention was not accepted by their Lordships in the view that the discrimination, if any, was not brought about by the Ordinances but by the circumstance that there was no income-tax in the Nabha State and consequently there was no case of assessment pending against any Nabha assessee.
26. To a similar effect is the decision in Purushottam Govindji v. Desai [1956] 28 I.T.R. 891. Section 46(2) of the Indian Income-tax Act, which authorised the Income-tax Officer to forward a certificate to the Collector specifying the amount of arrears due from an assessee and the Collector on receipt of such a certificate to recover from the assessee the amount specified therein as if it were an arrear of land revenue, was brought into con-troversy, inter alia, on the contention that it was inconsistent with the fundamental right guaranteed by Article 14 of the Constitution in that in the matter of recovery of land revenue, the assessees of one State were subjected to harsher treatment than those in others.
27. The question arose in this way. The assessee was assessed to income-tax by one of the Income-tax Officers, Bombay.- Since the assessee failed to pay the assessed amount of tax, the concerned Income-tax Officer issued to the Additional Collector of Bombay a recovery certificate under Section 46(2) of the Income-tax Act. The Collector, after notice to the assessee for the payment of the assessed amount of tax, attached the properties of the assessee and brought' them to sale. As these properties fetched a price which was not sufficient to cover the tax, after following the procedure prescribed by the Land Revenue Recovery Act of that State, the Collector got the assessee arrested and sent him to the civil jail. A petition was filed in the High Court of Bombay under Article 226 of the Constitution for the issue of a writ of habeas corpus complaining of the arrest of the assessee and for his-release. Though rule was issued by the High Court, it was eventually discharged. Thereupon a petition was filed in the Supreme Court under Article 32 of the Constitution for the same relief. One of the points raised before the Supreme Court was that Section 46(2) of the Income-tax Act provided for different modes of recovery of tax from assessees in different States, the machinery in some States being more rigorous than in others and that income-tax being a subject with respect to which the Union alone may make law and the recovery of it being Union responsibility, the machinery for the recovery of income-tax should be framed on a uniform all-India basis so that defaulters similarly situated may be treated alike and hence Section 46(2) infringed the equal protection clause of the Constitution. This argument did not find favour with the Supreme Court. Their Lordships laid down inter alia, that each State could devise its own machinery for the recovery of its own public demand, that persons belonging to one State could not complain that the law of his State is more rigorous than that of the neighbouring State, since the needs of the people of one State, as understood by their own Legislature, are different from those of the people of other States, that in the matter of recovery of arrears of land revenue .the defaulters of one State could not complain of unequal treatment because of the difference in the mode of recovery prevalent in other States, that there was nothing unreasonable1 in the Union adopting for the recovery of the public demand from the defaulters of each State the same mode of recovery of public demand prevailing in that State, that defaulters are classified on a territorial or geographical basis and that this basis of classification had the same relation to the object of the Indian Income-tax Act as it has to be the object of the different Public Demands Recovery Acts. They added that the fact that the income-tax demand is a Union public demand did not make any difference in the legal position. It was also held there that the classification was made State-wise and that in the matter of payment of public demands of the States, the people of the different States are not similarly situated and that each State imposed on its defaulters such, coercive process as the circumstances and the needs of that State required.
28. The decision in State of Rajasthan v. Rao Manohar Singhji [1954] S.C.J. 499 does not lay down any proposition different from the doctrine of this case. There, the offending law imposed certain disabilities on jagirdars of a certain area of the State and there was no evidence that those jagirdars were in any way different from the jagirdars of the other areas of the State. This case was referred to in Purushottam Govindji v. Desai [1956] 28 I.T.R. 891 and distinguished on this ground.
29. What emerges from these authorities is that a law cannot be struck down as infringing Article 14 of the Constitution on the ground that a combined operation of the law impeached and other laws made by other Legislatures will result in hostile discrimination against some individuals. In order to attract Article 14, such a consequence should flow from the operation of the challenged statute. As already remarked, no such effect could be attributed to the impugned section. The validity of a law cannot be judged with reference to Article 14 in the light of other statutes.
30. As pointed out by their Lordships of the Supreme Court in State of Madhya Pradesh v. Mandawar [1954] S.C.J. 503.
The power of the Court to declare a law void under Article 14 has to be exercised with reference to the specific legislation which is impugned. It is conceivable that when the same Legislature enacts two different laws but in substance they form one legislation, it might be open to the Court to disregard the form and treat them as one law and strike it down, if in their conjunction they result in discrimination .... But such a course is not open where the two laws sought to be read in conjunction are by different Governments and by different Legislatures.
31. Their Lordships further remarked that Article 14 did not authorise the striking down of a law of one State on the ground that, in contrast with a law of another State on the same subject, its provisions are discriminatory. It is not permissible for a Court to invalidate a law as denying equal protection of laws to its citizens on a comparative study of the provisions of different statutes.
32. If we were to adopt the test propounded by the counsel in assessing the validity of this section, while at present it is unconstitutional as being in conflict with Article 14, it would become quite valid at a subsequent date if all the State laws accept the same classification of goods in the matter of granting exemption. It cannot be predicated that a law which is invalid becomes valid not by any reason of any changes in the law itself or in the Constitution but because of what some other agencies might do or because of the changes that might be introduced in some other law.
33. It is unnecessary for us to refer to the rulings called in aid by some of the counsel for the petitioners that even taxing laws fall within the mischief of Article 14 as that proposition is incontrovertible. But the position is also indisputable that, while Article 14 forbids class legislation, it does not prohibit a classification based on intelligible differentia with a nexus between the basis of classification arid the object of the legislation. There can be little doubt that the two tests are satisfied in the instant case. The grouping of dealers generally exempt from tax and dealers exempted under certain conditions arid under certain circumstances into separate categories is State-wise and as such it is a territorial classification. It is also based on a reasonable differentia. It has a reasonable relation to the avowed object of the impugned legislation which is to levy and collect taxes for the benefit of the State and in that process acting as their agertt. The Parrliament merely adopted the laws of the various States to subserve the purpose for which it was devised, namely, the gathering of revenues for the different States in the form of tax on inter-State sales.
34. For all these reasons, we must hold that Section 8 is riot repugnant to Article 14 and is therefore immune from challenge.
35. Another point pressed upon us by Sri Ananta Babu appearing in one of the petitions is that geographical classification is not permissible' so far as taxing statutes are concerned and since this section attempts such a classification, it should be held to be void. In our opinion, this is an extreme proposition which does not merit serious consideration. It does not receive any support either from decided case's or from general principles. If a law is to be tested on the touchstone of Article 14, we fail to see how geographical classification cannot be permitted in judging its validity. Far from there being such an obstacle in the way of territorial classification, there is greater latitude in this behalf in the case of taxing statutes than under the Police powers. There is ample authority for this proposition. This is what Willis on Constitutional Law says at page 587 :
The Supreme Court permits a wider discretion in classification under the power of taxation, if possible, than it does under the Police power. One reason for this undoubtedly is the urgent need for revenue by the various governmental agencies. A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably.
36. In Gorantla Butchaiah Chowdary v. State of Andhra [1958] 9 S.T.C. 104 it was ruled, inter alia, that with reference to taxing statutes, the Legislature has considerable latitude in making classifications. We must, therefore, repel thisscontention as utterly lacking in substance.
37. Another argument advanced by the learned counsel was that Rule 14-A framed by the Government of Andhra Pradesh in exercise of the powers conferred by Section 13 of the Act is ultra vires its powers in that Government travelled beyond the scope of Section 8 (4) of the Act. In order to understand this argument, it is necessary to set out both Rule 14-A and Section 8(4) of the Act. Rule I4-A, as amended, says :
(i)(a) Every dealer registered under Section 7 of the Act and every dealer liable to pay tax under the Act shall submit so as to reach the assessing authority on or before the 25th of every month a return in Form C. S. T. VI showing the total and net turnovers of his transactions including those in the course of inter-State trade or commerce and in the course of export of the goods out of the territory of India during the preceding month and the amount or amounts collected by way of tax. The return shall be accompanied by a receipt from a Government treasury or a crossed cheque in favour of the assessing authority for the full amount of the tax payable for the month to which the return relates.
(b) Along with the return mentioned in Clause (a) of Sub-rule (1), the dealer shall also submit to the assessing authority-
(i) the originals of the declarations in Form C received by him from the dealer to whom he sold goods ;
(ii) the originals of the certificates in Form D, if any, received bye him in the case of sales to Government of India or to the Government of any State ; and
(iii) the originals of the certificates in Form E-i or E-II, if any, received by him from the dealer from whom he purchased the goods :
Provided that in case the dealer has not obtained the declaration forms from the purchasing dealers by the date of submission of the return, the declaration forms shall be obtained and submitted to the assessing authority concerned not later than three months from the close of the assessment year to which the transaction relates.
38. Section 8(4):-
The provisions of Sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold, containing the prescribed particulars on a prescribed form obtained from the prescribed authority.
39. The argument founded on Sub-section (4) of Section 8 is that prescribing a period for the submission of a return in C Form is not comprehended within the expression 'prescribed manner' in the sub-section. We do not think we can give weight to this contention. The manner in which the declaration should be furnished would certainly include the time within which it should be furnished. Therefore, in framing a rule like Rule 14-A with the proviso quoted above, the concerned Government was well within its rights in prescribing a period for furnishing the declaration. That apart, Section 13(3) confers authority on the State Government to make rules not inconsistent with the provisions of this Act and the rules made under Sub-section (1) to carry out the purpose of the Act. Surely, it could not be posited that fixing a time limit for the submission of the C Form is not to carry out the purpose of the Act.
40. Section 8(4) lays down that in order to get the benefits of Sub-section (1), a dealer selling goods should furnish a declaration signed by the person to whom the goods are sold. Thus, this section makes it a condition precedent to the seller to furnish that Form in order to avail himself of the benefit of Sub-section (1). There should be a time limit for submitting this declaration. Before an assessment could be finalised, the question whether part of the turnover is covered by Section 8(1) or not has to be determined. If no time is fixed and it is left to the. will and pleasure of the assessee, the assessment cannot be, completed and tax cannot be collected and this would defeat the very object of the Act. For these reasons, we are unable to subscribe to the view presented by Sri Ananta Babu on this topic also.
41. We will now turn to the contention presented by Sri Srinivasamurthy for the petitioner in Writ Petition No. 868 of 1958. The petitioner there is a dealer in sandalwood oil exporting it to Bombay and other' places. The first point sought to be made by him was that Section 8(2) is repugnant to Article 303 of the Constitution. According to him, sandalwood oil is manufactured in India, only in the States of Mysore, Andhra Pradesh and Uttar Pradesh, In Uttar Pradesh, there is no sales tax on sandalwood oil and as such dealers of sandalwood oil in Uttar Pradesh need not pay tax on sales of inter-State character, since sandalwood oil is generally exempt from tax in that State. That being the position, he could sell to any dealer he liked whether to a Governmental agency or to a registered or unregistered dealer without incurring the penal consequences, while a person situated like the petitioner will be subject to a higher rate of 7 per cent. if he fails to get himself registered and this differential treatment amounts to discrimination as against this State within the meaning of Article 303 of the Constitution. The learned counsel urges that the expression 'State' in Article 303 comprises within its comprehension the citizens of a State. For this latter proposition, he cites to us a decision of the Australian High Court in Cameron v. The Deputy Federal Commissioner of Taxation for Tasmania 32 Com. L.R. 68.
42. Before we examine the soundness of this argument, we will look at the relevant Articles occurring in Chapter XIII of the Constitution.
Article 301.-Subject to the other provisions of this part, trade or commerce and intercourse throughout the territory of India shall be free.
Article 302.-Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest.
Article 303.-(i) Notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving or authorising the giving of any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule.
(2) Nothing in Clause (1) shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination, if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India.
43. We will now assume that taxing statutes also fall within the scope of this Chapter in view of the majority decision of the Supreme Court in Atiabari Tea Co., Ltd. v. State of Assam A.I.R. 1961 S.C. 232 at 240, 248 and 254. But, do these Articles create any obstacle in the way of Parliament making taxing laws which could be said to impose restrictions on the freedom of trade, commerce or intercourse and does Aliabari Tea Co. Ltd. v. State of Assam A.I.R. 1961 S.C. 232, countenance the proposition advanced by learned counsel ?
44. In this connection, it should be remembered that Article 302 empowers Parliament to make restrictions on trade and commerce if such restrictions were necessitated by public interests. If taxing laws could be construed as imposing restrictions on trade, commerce and intercourse so as to attract Article 301, Parliament has undoubted authority to make taxing laws, provided it is in the interests of the public by virtue of Article 302. Public interest is implicit in every taxing measure since the power of levying tax is essential for the very existence of the Government. Therefore, whether a taxing statute is in the public interests or not is not justiciable. See Atiabari Tea Co., Ltd. v. State of Assam, A.I.R. 1961 S.C. 232. It is clear that Parliament has plenary powers to make taxing laws notwithstanding that they might interfere with the freedom of trade and commerce between one State and another.
45. Now, can such statutes be attacked as contravening Article 303 We are not persuaded that such enactments are affected by Article 303. The passages occurring in paragraphs 43 and 74 in the judgment of their Lordships, Gajendragadkar, J., who spoke for the majority and Shah, J., respectively, relied on by the counsel (sic.) assist his case. The statement of law in paragraph 43 merely poses the problem as to what 'freedom' in Article 301 is and his answer is to be found in the subsequent paragraphs. The learned Judge, after discussing the various Articles of that Chapter, arrives at the decision that it included freedom from taxing laws which have the effect of directly impeading the free flow of trade, commerce and intercourse. Nothing is said in paragraph 74 also which justifies the argument that taxing laws are governed by Article 303. On the other hand, it was observed by the learned Judge that Article 303 emphasises the object of the Constitution-makers to safeguard the economic unity of the nation and to prevent discrimination between constituent States in the matter of trade and commerce and that the discrimination which is prohibited is not limited to discrimination under laws made under items expressly relating to trade and commerce items of the Seventh Schedule. It is seen that stress is laid by the learned Judge on discrimination to be made by Parliament between the different States in exercise of the powers vested in the entries relating to trade and commerce in any of the Lists of the Seventh Schedule. It is brought out that Article 303 relates only to discrimination based on entries contained in any of the Lists of the Seventh Schedule relatable to trade and commerce. The entries that have a bearing on trade and commerce are Item 42 in List I, inter-State trade and pommerce, Item 26 of List II, trade and commerce within the States subject to the provisions of Entry 33 of List III, and Entry 33 of List III, trade and commerce in and the production, supply and distribution, etc., whereas the law now impeached is made by Parliament under Entry 92-A of List 1.
46. The observations were made by Gajendragadkar, J., who gave the majority judgment in the context of the question whether the scope of freedom of trade and commerce envisaged in Article 303 is confined to discrimination based upon items bearing only on trade and commerce. The learned Judge, while rejecting the argument advanced on behalf of the State Government that the reference in Article 303(1) to entries relating to trade and commerce in any. of the Lists would indicate the ambit of the provisions of Article-303, remarked thus :
The setting in which the said entries are referred to would of course determine the scope and extent of the prohibition prescribed by Article 303(i); but that cannot be pressed into service in determining the scope of Article 301 itself. It is significant that Article 303(1) does not refer to intercourse and in that sense intercourse is outside its sphere. It is likely that having authorised Parliament to impose restrictions by Article 302 it was thought expedient to prohibit expressly the said power of imposing restrictions from being used for the purpose of giving any preference in so far as the relevant entries are concerned. It may also be that the primary object of confining the operation of Article 303(1) to the said entries was to introduce a corresponding limitation on the power of Parliament to discriminate under Article 302.
47. It is plain from this extract that Article 303 is specifically limited to the entries concerning trade and commerce, which have been extracted above and do not touch the laws made under the other entries.
48. It is to be borne in mind that the entries relating to the main concept of legislation and those relating to taxes figure, in two groups ; for instance, in List I, Entries I to 81 mention the several matters over which the Parliament was empowered to make laws, while Entries 82 to 92 deal with taxes that could be imposed by Parliament. Likewise, in List II, Items 1 to 44 enumerate the subjects on which the State could legislate. Items 45 to 63 form the second group dealing with taxes. Article 303 envisages only entries relating to topics over which the different Legislatures have power to legislate. Taxing laws such as the impugned one are covered by the other group of entries in the concerned lists.
49. This distinction is forcibly brought out by Venkatarama Ayyar, J., in Sttndararamier & Co. v. State of Andhra Pradesh [1958] S.C.J. 459. The learned Judge, after referring to the two groups of entries, remarked that the power to legislate on the main subjects did not include the power to make taxing laws and that the provisions for taxing statutes is made by different groups of items. The learned Judge, inter alia, refers to Entry 22 in List 1, 'railways' and Entry 89 'Terminal taxes on goods or passengers, carried by railway, sea or air ; taxes on railway fares and freights' and remarked that if Entry 22 is to be construed as involving taxes to be imposed, then Entry 89 would be superfluous. To emphasise the difference between the two groups, he also refers to Entry 18, 'Land', Entry 45 'land revenue',Entry 23 'regulation of mines' and Entry 50 'taxes on mineral rights'. He lastly said that
construing Entry 42 in the light of the above scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter-State trade and commerce under Entry 42 does not include a power to impose a tax on sales in the course of such trade and commerce.
50. It is clear from this ruling that taxation was treated as a distinct matter for the purpose of legislative competence and was not included in the entries mentioned in the first group in either of the lists. That being the position, Article 303 cannot be invoked to strike down Section 8 of the Act as discriminating between dealers of different States in the matters of granting exemption.
51. In this view of the matter, it is unnecessary to consider whether the expression 'State' takes in the residents of a State or the bearing of the Australian case on that question.
52. Therefore, the argument based on Chapter XIII of the Constitution is also unavailable to the petitioners. It follows that the impugned section is not impaired by Article 14 nor is it imperilled by Article 303 of the Constitution. In the circumstances, we hold that Section 8 is constitutional and that its validity cannot be successfully challenged.
53. In the result, all the writ petitions are dismissed with costs. Advocate's fee Rs. 50 in each.