Hind Tobacco and Cigarette Co. Ltd. Vs. Union of India (Uoi) and ors. - Court Judgment

Excerpt:
commercial - omission - whether appellant entitled to claim amount of sales-tax from respondent when it had not mentioned it in tenders - separate mention of sales-tax which does not relate to fundamental term or core of contract cannot be considered to deprive appellant of its right to realise sales-tax actually held by sales tax department to be leviable and which respondent in express terms undertaken to pay. - [ a.k. sarkar,; b.p. sinha,; j.l. kapur,; subba rao,; m. hidayatullah, jj.] the petitioners challenged the constitutionality of the sugar export promotion act, 958, which was enacted for the purpose of exporting sugar with a view to earning foreign exchange. the impugned act imposed the following restrictions on the owners of factories producing sugar by the vacuum pan process: (i) it obliged them to deliver to the export agency specified by the central government the quota of sugar allocated to them; (ii) it made them suffer a loss on this delivery of sugar; and (iii) it exposed them to a penalty in case the delivery was short of the quota. by a notification issued under the sugar (control) order, 1955, which was made under the essential commodities act, 1955, the central government increased the price of sugar for internal sales by 50 np. per maund to enable the owners to recoup the loss suffered by them by the delivery of the sugar for export. the petitioners contended that it was not permissible to take the notification issued under another statute into consideration and that the impugned act offended arts. 14 and 19(1)(f) and (g) of the constitution. held, per sinha, imam, kapur, subba rao and hidayatullah, jj., sarkar, j. dissenting) that the impugned act was constitutionally valid. per sinha, imam, kapur and hidayatullah, jj. the restrictions placed by the act upon the fundamental rights of the petitioners under arts. 19(1)(f) and (g) were not unreasonable as arrangements were made to save them from loss by increasing the price of sugar for internal sales, thus passing on the loss to the consumers in india. the reasonableness of the restriction and not of the law was to be determined, and if the restriction was under one law but countervailing advantages were created by another law passed as part of the same legislative plan, the court must take that other law into account. the reasonableness of the restriction was to be judged at the time it was challenged and in the context of the circumstances then existing. the notification of the central government increasing the price of sugar to enable the recoupment of the loss occasioned by the export could be taken into consideration in judging the reasonableness of the restrictions. state of madras v. v. g. row [1952] s.c.r. 597; virendra v. the state of punjab, [1958] s.c.r. 308 ; arunachalam nadar v. state of madras, 1959 s.c.j. 297 ; attorney-general for alberta v. attorney-general for canada, (1939) a. c. 117 ; ladore v. bennet, (1939) a.c. 468 and pillai v. mudanayake, (1953) a. c. 514, relied on. the foreign export served the national interest by stabilising the sugar market and stabilised national economy by earning foreign exchange. the loss, if any, was spread over many factories and was so small as not to amount to an unreasonable restriction. the act did not offend art. 14 of the constitution in selecting sugar produced by the vacuum pan process for export and in leaving out sugar produced by other methods and other commodities from the mischief of the act. the government was the best judge as to which commodities were most likely to earn foreign exchange and the selection made was justifiable as a reasonable classification which was related to the object of the act of earning foreign exchanger per subba rao, j. in testing the reasonableness of the restrictions imposed by the impugned act it was not permissible to take into consideration the notification under the sugar (control) order, 1955, increasing the price of sugar for internal sales by 50 np. per maund. the test of reasonableness of one act could be made to depend upon the impact of another act on it only when the earlier act was made part of later act or when both acts were parts of the same legislative scheme or plan. to go beyond this would be to destroy the stability of legislation and to introduce an uncertain element. to go further and to depend upon a notification of a transitory nature issued under an unconnected act would be to place the statute in a fluid state. the impugned act and the essential commodities act were enacted for different purposes. state of madras v. v. g. row [1952] s.c.r. 597; attorney- geneyal for alberta v. attorney-geneyal for canada (1939) a. c. 117 ; ladore v. bennet (1939) a. c. 468 and pillai v. mudanayake, (1953) a. c. 514, distinguished. the restrictions imposed by the impugned act were not unreasonable as the act served the national interest by earning foreign exchange for the state and building up foreign markets for the future prosperity of the sugar industry. per sarkar, j. the impugned act which made the petitioners suffer a loss on the sale of a part of their produce imposed unreasonable restrictions on their fundamental right to carry on their business and was invalid. though in deciding the reasonableness of the restrictions imposed by the impugned act all the prevailing conditions and circumstances had to be considered, the notification increasing the home price of sugar could not be taken into consideration. the impugned act neither made it obligatory on, nor empowered the government to take any steps to recoup the loss caused to the petitioners. the increase in the price depended solely on the arbitrary discretion or generosity or sense of fair play of the government. it would be intolerable in any legal system that a statute should be legal when the government chose to do a thing and illegal when it undid it and so on from time to time at the choice of the government. besides, there was nothing in the essential commodities act or the sugar (control) order which authorised the government to increase the price for the sake of recouping to the manufacturers the loss caused to them by the impugned act, and the validity of the notification increasing the home price of sugar was doubtful. state of madras v. v. g. row [1952] s.c. r. 597, distinguished. the impugned act caused loss to the petitioners which was not negligible and thus imposed unreasonable restrictions on 6 their right to carry on their business. the restrictions could not be justified on the ground that they resulted in stablising the sugar industry as the industry (lid not require any stabilisation. the export was not to be made out of the excess of production over internal consumption and in fact production in india had always been less than internal consumption.   - sales tax would be paid at the rates prescribed by the state government concerned but in the event of any rebate or refund or sales tax allowed by the state government (on purchases for the defence services) subsequent to supplies, a corresponding credit will be afforded by the supplier to the government, sales tax where leviable and intended to be claimed from the purchaser should be distinctly shown along with the price quoted, where this is not done, no claim for sales tax will be admitted at any later stage or on any ground whatsoever. writ petitions to the andhra pradesh high court were also unsuccessful. the trial court also took into account the fact that the plaintiff had resisted, the levy of sales-tax right upto the high court but without success. the circumstances of the case clearly reveal that not only the plaintiff but also the central government were under the bona fide belief that no sales-tax would be levied by the state of andhra pradesh as it appears from the averments of the defendant that as the cigarettes were delivered outside the state or andhra pradesh for the purpose of consumption outside the state the despatching state could not tax the sales as they were inter state sales. chagla fixation and payment of the price as also payment of sales-tax at the rates prescribed by the state government in the present case, was the core of one of the fundamental obligations undertaken by the defendant-purchaser in lieu of the cigarettes purchased and this clearly signifies payment of sales-tax by the state government, if leviable. the term that the sales-tax, if payable, should be shown as a separate item is merely a matter of procedure and the condition that if the sales-tax intended to be claimed is not distinctly shown then no such claim would be admitted at a later stage is more akin to exemption from this liability. the express and unqualified representation by the defendant' in the note to clause 7 in schedule b that sales-tax was not leviable on these sales was, in our opinion, sufficient to justify the omission on the part of the plaintiff to distinctly show it with the price quoted to be intended to be claimed. 12. for the foregoing reasons, in our opinion, the high court was in error in allowing the appeal and reversing the well-considered judgment of the trial court.i.d. dua, j.1. this is plaintiff's appeal by certificate from the judgment and decree of the andhra pradesh high court reversing on appeal the judgment and decree dated february 23, 1963 of the first additional chief judge, city civil court, hyderabad, which had decreed the present appellant's suit for rs. 1,14,960.86 ps. against the union of india. the high court allowed the appeal of the union of india and dismissed the plaintiff's suit.2. the defendant called for tenders for the supply of cigarettes on various occasions. the plaintiff-company carrying on the business of manufacturing cigarettes submitted its tenders which were accepted by the chief director of purchases, government of india, ministry of food & agricultural department of food, army purchase organization, new delhi. after acceptance of the tenders several contracts were entered into between the parties beginning with december 23, 1954 and ending july 11, 1957. they were all subject to the terms and the special instructions and conditions of contract in schedules a and b to the contracts. clause 7 of schedule b relating to price (with the note) reads as under:schedule b.7. price: the price quoted will be subject to clause 3(b) of the general conditions of conduct (supply department form w.s.b. 133).the price quoted will be deemed to be inclusive of the cost of packing, cigarettes excise duty, tobacco excise duty customs duty and all other charges (incidental to supply and incurred upto loading) but exclusive of sales tax which if payable should be shown as a separate item. sales tax would be paid at the rates prescribed by the state government concerned but in the event of any rebate or refund or sales tax allowed by the state government (on purchases for the defence services) subsequent to supplies, a corresponding credit will be afforded by the supplier to the government, sales tax where leviable and intended to be claimed from the purchaser should be distinctly shown along with the price quoted, where this is not done, no claim for sales tax will be admitted at any later stage or on any ground whatsoever.all claims for reimbursement of sales tax will be accompanied by the following certificate duly signed by the contractors:certified that no rebate or exemption has so far been allowed by the sales tax authorities retrospectively in respect of the reimbursement of sales tax so far claimed by us from the central government and if it is subsequently allowed the same will be to the chief director of purchase, ministry of food & agriculture at once.certified that the goods on which sales tax has been charged have not been exempted under the state sales tax act or the rules made there under and the charges on the account of sales tax on these goods are correct under the provisions of that act or the rules made there under.note: under article 286(1) of the constitution of india no sales tax is payable on supplies procured on central government account and dispatched outside the state of origin.3. in exhibit b-4 (tender no. a/3636 dated december 11, 1954) the plaintiff-company inserted in the column pertaining to 'price per unit' that it was 'subject to sales-tax. at the rate of 1 anna per rupee', but noted in the 'remarks' column, 'no sales tax is leviable as per schedule b'. the quotations in this tender were also stated to be subject to the terms and conditions given in the f & a ministry's letter dated july 6, 1954. that was the letter (b-1) inviting tenders with which were enclosed schedules a and b. supplies were duly made by the plaintiff in accordance with the terms of the tender. both the parties were apparently under the belief that these sales were not subject to sales tax. the commercial tax officer, however, taxed all the sales and levied a total tax of rs. 1,14,960.36 ps. for the four assessment years 1954-55 to 1957-58. the plaintiff took the matter on appeals but they were all rejected upto the appellate tribunal. writ petitions to the andhra pradesh high court were also unsuccessful. the plaintiff demanded reimbursement by the central government to the extent of the amount of sales-tax actually paid. on rejection of this demand, after giving the statutory notice under section 80 c.p.c. the plaintiff instituted the suit for the recovery of rupees 1,14,960.36 which has given rise to the present appeal. the suit was resisted by the union of india on various grounds, including even the bar of limitation. defence on the merits was principally based on clause 7 of the social instructions in schedule b of the tender invitation. it was also pleaded in para 5 of the written statement that the mention of no sales-tax being leviable (made in the contract of december, 1954 and some others) was discontinued because it was considered redundant.4. the pleadings of the parties gave rise to as many as 7 issues, those relevant for our present purpose being nos. 2, 3, 5 and 6. they are as follows:.2. what is the effect of note to clause 7 of the contract?3. whether the plaintiff company is entitled to claim the amount of sales tax from tile defendant when it has not mentioned the same in the tenders?.5. whether the plaintiff is entitled to the reimbursement of sales tax from the defendant.6. whether the central government and the plaintiff were under the bona fide belief that no sales tax would be leviable by the state of hyderabad and then the state of andhra pradesh.the trial court dealt with these four issues together. it did not agree with the contention of the government counsel that if the sales-tax was payable the plaintiff should have claimed the same in their tenders as a separate item and having not done so they could not claim reimbursement of the sales-tax paid by them and that the plaintiffs could have found out with reasonable diligence whether or not sales-tax was leviable on the sales in question. in the trial court's opinion the note to clause 7 in schedule b could by no stretch of imagination be deemed to be a mere expression of opinion. in the presence of that note the plaintiff was held entitled to assume that no sales-tax was leviable on the goods despatched outside the state. the goods, according to the trial court, were eventually despatched and consumed outside the state and the supplies were procured on the central government account. in the presence of clause 7 in schedule b the plaintiff could not have claimed the sales-tax in the tenders and the trial court also observed that the note to this clause was very misleading and. it indeed did mislead the plaintiff into the belief that no sales tax was leviable on the cigarettes procured for the central government and despatched outside the state, otherwise the plaintiff would have felt no difficulty in claiming sales-tax in the tenders. even in ex. b-5, the letter from the government of india accepting the plaintiffs tender dated december 11, 1954, it was expressly noted that the sales tax was not payable as dispatches would be made outside the state of origin. this note was prominently added against the 'n.b.'. in the opinion of the trial court even article 286 of the constitution was also wrongly quoted in the note to clause after taking into account all the relevant circumstances the trial court felt that it could not be suggested with fairness that the plaintiff company was not free to assume that sales tax was not payable on the dispatches of cigarettes made outside the state, the plaintiff company was assessed on the sales for the first time in december, 1957 and payment for the last contract had been made on october 31, 1957 with the result that the plaintiff could not have claimed sales-tax in the tenders, being unaware till assessed, that sales-tax was payable on. these sales. the trial court also took into account the fact that the plaintiff had resisted, the levy of sales-tax right upto the high court but without success. the ultimate conclusion was expressed by that court in these words:the circumstances of the case clearly reveal that not only the plaintiff but also the central government were under the bona fide belief that no sales-tax would be levied by the state of andhra pradesh as it appears from the averments of the defendant that as the cigarettes were delivered outside the state or andhra pradesh for the purpose of consumption outside the state the despatching state could not tax the sales as they were inter state sales. the plaintiff company in my opinion is therefore entitled to the reimbursement of the sales-tax from the defendant as they were misled by the representation of the defendant that no sales tax is leviable on the goods despatched outside the state and, therefore, they did not claim the sales tax in the tenders. i therefore decided issues 2, 3, 5 and 6 in favour of the plaintiff firm.the plaintiff's suit was decreed, as already noticed.5. the high court on appeal did not regard clause 7 as constituting any misrepresentation on the part of the government and treated that clause 'at the most as an opinion on a point of law'. reimbursement under clause 7 according to the high court, could only he claimed if the plaintiff 'included sales-tax as chargeable against the buyer in the first instance'. on this reasoning the defendant's appeal was allowed and the plaintiff's suit dismissed.6. in this court mr. chagla, the learned counsel for the appellant strongly contended that the high court was in error in holding that clause 7 merely contained an opinion on a point of law. it was really an assertion on a question of fact or at any rate on a mixed question of fact and law. according to him in the very first tender (ex. b-4) ,the sales-tax was specified and it was slated in the remarks column that the same was not 'leviable as per schedule b, in that schedule as per clause 7 the government had unequivocally, stated that sales-tax was not leviable. the plaintiff's tender was accepted by the government. in subsequent tenders this mention was dropped as being redundant. that this was the reason for the subsequent omission is admitted and indeed in the defendant's written statement in para 5 a plea to this effect is taken in positive terms.7. according to mr. chagla fixation and payment of the price as also payment of sales-tax at the rates prescribed by the state government in the present case, was the core of one of the fundamental obligations undertaken by the defendant-purchaser in lieu of the cigarettes purchased and this clearly signifies payment of sales-tax by the state government, if leviable. the circumstances in which the seller-appellant could be deprived of the right of reimbursement was an exemption clause and, therefore, that had to be. strictly construed. the exemption clause in the present circumstances, according to his submission cannot be so construed as to deprive the plaintiff's right as seller to claim sales-tax from the defendant as buyer.8. on behalf of the union of india, respondent in this court. shri sanghi referred us to the plaintiff's letter dated december 11, 1954 (ex. b-4), the first offer to supply cigarettes and contended that this was the only contract in which in the column of price, sales-tax was mentioned and reference was made in the 'remarks' column to schedule b for excluding the sales-tax. in the subsequent contracts, according to the respondent's counsel, there was no such mention. he drew our attention to the subsequent offers to support his submission. the learned counsel also relied on the tata iron & steel company ltd. v. state of bihar air 1959 sc 452 for the contention that the buyer is under no liability to pay sales-tax in addition to the agreed, sales price: there could, therefore, be no question of any agreement on the part of the defendant to reimburse the plaintiff, argued the counsel. finally it was submitted that the high court had certified the case to be fit for appeal only because of its high valuation and because of the judgment of the high court being one of reversal: the grant of certificate by the high court does not in the circumstances mean that the case involves any important question of law. this court is, therefore, not obliged to interfere with the decision of the high court, even if it is considered to be erroneous contended shri sanghi.9. dealing with the last argument first, article 133(1) confers a right of appeal on an aggrieved party when the case satisfies the requirement of clause (a) and the judgment of the high court is one of reversal. in such a case it is not necessary that a substantial or important question of law should also be involved. this court, therefore, cannot justifiably decline to go into the merits of the appeal on the ground that no substantial question of law is involved. but this apart, it cannot be said that this appeal does not involve any substantial question of law.10. turning to the merits it is clear and indeed it is not disputed that clause 7 in schedule b governs the various contracts of sale between the parties. this clause expressly provides that the price quoted is exclusive of sales-tax. but sales-tax was expressly agreed to be paid at the rates prescribed by the state government concerned. this liability appears to us to be the real core of one of the fundamental terms of the obligation undertaken by the purchaser. the term that the sales-tax, if payable, should be shown as a separate item is merely a matter of procedure and the condition that if the sales-tax intended to be claimed is not distinctly shown then no such claim would be admitted at a later stage is more akin to exemption from this liability. in the case in hand in the very first tender, as already noticed, the plaintiff had actually separately shown in distinct terms that the price per unit stated in column no. 4 was subject to sales-tax at the rate of 1 anna per rupee. in the remarks column it was again expressly mentioned that no sales-tax was leviable as per schedule b. this tender fully complies with clause 7 both in letter and in spirit even though in our opinion in view of the note to clause 7 this mention was scarcely necessary, the sales-tax not being leviable according to the defendant's representation. in subsequent tenders, if there is no mention of sales-tax or of the fact that it was not leviable as per schedule this was due to the fact that it was considered redundant. this, as already noticed, was also admitted by the defendant in the written statement. the separate mention of sales-tax which, in our opinion, does not relate to the fundamental term or core of the contract, cannot be considered to deprive the plaintiff of its right to realise the sales-tax actually held by the sales-tax department to be leviable and , which the defendant had in express terms undertaken to pay. the express and unqualified representation by the defendant' in the note to clause 7 in schedule b that sales-tax was not leviable on these sales was, in our opinion, sufficient to justify the omission on the part of the plaintiff to distinctly show it with the price quoted to be intended to be claimed. this omission could by no means deprive the plaintiff company of the right under the contract to claim from the defendant sales tax at the prescribed rate actually paid.11. a faint contention was raised on behalf of the defendant-respondent that there was no agreement by the defendant to pay sales-tax because the cigarettes supplied by the plaintiff were of an inferior quality and therefore, the company must be deemed to have agreed not to charge sales tax from the purchaser as is the normal practice in the market. in support of this submission reference was made to ex. b-1, a letter dated july 6, 1954, written by the deputy director of purchase, government of india, ministry of food and agriculture to the plaintiff company. all that this letter suggests is that since none of the plaintiff's 'brands' had been approved, the plaintiff was requested to get its brands approved from the director of supplies and transport so as to enable the company to quote against the ministry's future tender enquiries. this letter does not support the counsel's submission. apparently after july, 1954 the plaintiff must have got their brands approved which enabled them to quote against the ministry's future tender enquiries. it is not and was never the defendants' case that the brand of cigarettes for which the tenders were actually accepted were of an inferior quality. this contention is an afterthought and is unacceptable. it is somewhat surprising that the state government should have advanced this plea. indeed even the main plea which was plainly contrary to the clear and explicit representation of the state government does not reflect the expected fairness on the part of the defendant in their dealings with the citizens.12. for the foregoing reasons, in our opinion, the high court was in error in allowing the appeal and reversing the well-considered judgment of the trial court. we accordingly allow the appeal and reversing the judgment and decree of the high court restore that of the trial court with costs throughout.