Case: State of Uttar Pradesh and Another Vs. Synthetics and Chemicals Limited and Another


Decision reasoning: 1[ds]That was abrupt observation without a preceding discussion, and inconsistent with the reasoning adopted by this Court in earlier decisions from which no dissent was expressed on the point. Coming, as it does immediately, after a reference to Entry 52 of List II in connection with excise duty and sales tax when neither falls under that entry, the submission of the Advocate General that the observation regarding sales tax in para 86 of the judgment was per incuriam assumes greatis significant that the taxing power of State on a matter falling within its competence under this entry, namely, sale or purchase of goods (other than newspapers) is subject to the taxing power of Parliament under Entryof List I, and other provisions of the Constitution, plenary and unlimited, and untrammelled by the supervisory or regulatory power of Parliament under Entry 52 of List I read with its concurrent power under Entry 33 of List III.Taxes levied and collected by the Union on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of interstate trade or commerce, are assigned to the States in the manner provided in clause (2) of Article 269. Clause (3) of that article says that Parliament may by law formulate principles for determining when a sale or purchase or consignment of goods takes place in the course of interstate trade or commerce. It was by virtue of this power that Parliament enacted the Central Sales Tax Act, 1956, Section 3 and 4 of which formulate principles for determining when a sale or purchase of goods has taken place in the course or interstate trade or commerce or outside a State. In all other respects the State enjoys legislative power to levy taxes on the sale or purchase ofNone of the entries in the Concurrent List deals with tax but general subjects of legislation. No conflict can, therefore, arise between the taxing powers of the Union and the States. Parliament has the power to legislate in respect of a controlled in industry falling under Entry 52 of List I, and both Parliament and the States have the power to legislate in respect of the trade and commerce in, and the production, supply and distribution of, the products of a controlled industry (Entry 33 of List III). These are not taxing entries and so not, therefore, relate to taxes, but powers of regulation and control. The power to control industry being thus vested in Parliament (Entry 52 of List I) and the legislative power in respect of trade and commerce in such industry being concurrently vested in the Union and the States (Entry 33 of List III) any exercise of control by the State must be subject to the legislative power of Parliament and the power conferred on the Central Government by such legislation (Article 246). Any exercise of power by the State which transgresses upon the power of Parliament or of the Central Government, as it delegate, is to the extent of such transgression null andThe control exercised by the Central Government by virtue of Sectionof IDR Act is in a field far removed from the taxing power of the State under Entry 54 of List II. So long as the impugned legislation falls in pith and substance with the field of the State, the control of the Central Government in exercise of its power under the IDR Act in respect of a controlled industry falling under Entry 52 of List I cannot in any manner prevent the State from imposing taxes on the sale or purchase of goods which are the products of such industry and which are referable to Entry 33 of List III. As seen above, the taxing power of the State under Entry 54 of List II cannot be cut down by the general legislative power of control of the Central34. The levy of fee, whether called vend fee or transport fee or duty or charge, whether levied by rules purportedly made under the Excise Act or the Prohibition Act or any other statute, otherwise than as a proper levy falling in pith and substance under a taxing entry, was not valid, to the extent that it lacked quid pro quo and applied to industrial alcohol. Any such fee or charge can be justified as a mode of control falling in pith and substance under Entry 8 read with Entry 66 of List II only to the extent that it remains within the bound of the concerned subject matter, namely, intoxicating liquors, which must necessarily exclude industrial alcohol35. We see no substance in the contention that the Price Control Orders made by the Central Government in exercise of its power under the IDR Act fettered the legislative power of the State on a matter falling under Entry 54 of List II. Taxes on sale or purchase are not governed by the Price Control Orders, for the purpose of the latter is to prevent the seller from pricing his goods beyond the limit prescribed by the Orders. That is a fetter on the free play of demand and supply. When supply is scarce, the prices are bound to rise and it is that vice which is controlled by fixing the maximum price. But that does not in any manner curtail the power of the State to levy taxes on the sale or purchase of goods. It is no doubt true that the consumer of the article must, in addition to the price, pay purchase tax due in respect of them. But that is by reason of a valid levy which is within the constitutional power of every State, and is de hors the price, though often referable to it36. The High Court, in our view, was clearly in error in striking down the impugned provision which undoubtedly falls within the legislative competence of the State, being referable to Entry 54 of List II. We are firmly of the view that the decision of this Court in Synthetics ( 1990 (1) SCC 109 ) is not an authority for the proposition canvassed by the assessee in challenging the provision. This Court has not, and could not have, intended to say that the Price Control Orders made by the Central Government under the IDR Act imposed a fetter on the legislative power of the State under Entry 54 of List II to levy taxes on the sales or purchase of goods. The reference to sales tax in paragraph 86 of that judgment was merely accidental or per incuriam and has, therefore, no effect on the impugned levy.The genesis of the problem dealt with in Synthetics ( 1990 (1) SCC 109 ) is traceable to the decision in the State of Bombay v. F.N. Balsara 1951 SCR 682 : 1951 AIR(SC) 318 : 52 CrLJ 1361) where this Court stated that the word liquor as understood on this country at the time of the Government of India Act, 1935 comprehended not only alcoholic liquors which were generally used as beverages and which produced intoxication, but also all liquors containing alcohol. Section 2(24) of the Bombay Prohibition Act, 1949 was held to be intra vires. However, so far as medicinal and toilet preparations containing alcohol were concerned, Sections 12 and 13 of the Act were held to be invalid, being an unreasonable restriction on the fundamental right, to the extent that they prohibited possession, sale, use and consumption of liquors for medicine and toilet preparations, but were held to be valid to the extent that they applied to other categories of alcoholic liquors, namely, spirits of wine, methylated spirit, wine, beer and toddy, as these items were distinctly separate and easily severable from the other category, namely, all liquors containing alcohol16. It was this principle which was followed by this Court in Synthetics ( 1980 (2) SCC 441 : 1980 (2) SCR 531 ) where it was held that there was no fundamental right for a citizen to carry on trade or business in liquor and that the State had the power to enforce absolute prohibition on manufacture or sale of intoxicating liquor by reason of Article 47 of the Constitution and that the State had exclusive right or privilege to manufacture or sell liquor. This Court also held that the expression intoxicating liquor was not confined to potable liquor, but would also include all liquors which contained alcohol. The State Government had the power to levy a fee for parting with its exclusive right in respect of intoxicating liquor. This Court stated that alcohol included both ordinary as well as specially denatured spirit. Denatured spirit contains ethyl alcohol. The specially denatured spirit for industrial purposes is different from denatured spirit only because if the difference in the quantity and quality of the denaturants. Specially denatured spirit and ordinary denatured spirit were classified according to their use and denaturants used. This Court rejected the distinction sought to be drawn between denatured spirit for industrial purposes and ordinary denatured spirit17. It was this wider understanding of intoxicating liquor so as to comprehend not only potable alcohol, but also industrial alcohol, that was disapproved in Synthetics ( 1990 (1) SCC 109 ). In drawing the distinction between potable andalcohol, this Court had in mind the tremendous changes which have taken place in science and technology and in industry and commerce and the increasing use of industrial alcohol in various industries. Drawing a distinction between potable andalcohol and, confining the doctrine of Article 47 to the former, this Court came to the conclusion that the impugned statutory provisions purportedly levying fees or enforcing restrictions in respect of industrial alcohol were impermissible in view of the control assumed by the Central Government in exercise of its power under Sectionof the IDR Act in respect of industry falling under Entry 52 of List I, read with Entry 33 of List III. Alcohol as an industry being one of the industries brought within the purview of the IDR Act and thus under the regulatory control of the Union, the power to grant licence for the manufacture of alcohol is vested in the Central Government. Distilleries manufacturing alcohol are necessarily licensed under the IDR Act for such distilleries can manufacture alcohol of all types and therefore, are necessarily brought under the control of the Central Government18. It is in this background that the cardinal question has to be examined, that is, whetheror not the power of the State of levy tax on the sale or purchase of goods falling under Entry 54 of List II will comprehend industrials significant that the taxing power of State on a matter falling within its competence under this entry, namely, sale or purchase of goods (other than newspapers) is subject to the taxing power of Parliament under Entryof List I, and other provisions of the Constitution, plenary and unlimited, and untrammelled by the supervisory or regulatory power of Parliament under Entry 52 of List I read with its concurrent power under Entry 33 of List III.This is the crucial distinction between the side taxing power of the State under Entry 54 of List II and its conditional or restricted taxing power, for example, over mineral rights mentioned in Entry 50 of that List which was considered in India Cement Ltd. v. State of T.N. ( 1990 (1) SCC 12 ). Similarly, the power of the State in respect of potable alcohol (as distinguished from industrial alcohol) falling under Entry 8 of List II is significantly unfettered, unlike, for example, mines and mineral development over which the regulatory power of the State is specifically stated to be subject to the regulatory power of Parliament (see Entry 23 of List II read with Entry 54 of List I). The legislative competence of the State in respect of mines and minerals was accordingly held to be denuded to the extent that the field was covered by Section 9 of the Central Act, namely, Mines and Minerals (Regulation and Development Act), 1957 (see India Cement ( 1990 (1) SCC 12 )). Unlike mines and mineral, alcohol stands on a different footing, and is dealt with differently, dependent on whether it is potable or not. What is significant is that legislation falling in pith and substance under Entry 8 or Entry 51 of List II in relation to alcoholic liquor for human consumption (as distinguished from industrial alcohol) whether for the purpose of levying vend fee or transport fee or excise duty, strictly confined to such articles, is not subject to challenge on the ground of legislative incompetence or repugnancy by reason of the power vested in Parliament under Entry 52 or Entry 84 of List I of Entry 33 of List III. Incompetence or repugnancy arises only when the impact of the legislation falls, not incidentally, but substantially on industrial alcohol so as to transgress on a field occupied byWe see no substance in the contention that the Price Control Orders made by the Central Government in exercise of its power under the IDR Act fettered the legislative power of the State on a matter falling under Entry 54 of List II. Taxes on sale or purchase are not governed by the Price Control Orders, for the purpose of the latter is to prevent the seller from pricing his goods beyond the limit prescribed by the Orders. That is a fetter on the free play of demand and supply. When supply is scarce, the prices are bound to rise and it is that vice which is controlled by fixing the maximum price. But that does not in any manner curtail the power of the State to levy taxes on the sale or purchase of goods. It is no doubt true that the consumer of the article must, in addition to the price, pay purchase tax due in respect of them. But that is by reason of a valid levy which is within the constitutional power of every State, and is de hors the price, though often referable to it