Case: M/s. Devi Dass Gopal Krishnan &amp; Others Vs. State of Punjab &amp; Others

2. The facts may be briefly stated3. The assessees in Civil Appeals Nos. 526, 527 and 529 of 1964 carry on business at Moga in Punjab and each owns an oil mill. They purchase oil seeds and, after crushing the same in their oil mills, sell the oil and the residual oil-cake. They are registered dealers under the Act. The Amending Act imposed a purchase tax of 2 per cent on the purchase of oi1-seeds "for the use in the manufacture of goods for sale". This was in addition to the sales-tax leviable on the sales of oil and oil-cake. On June 23, 1959, the Excise and Taxation Officer, Ferozepore, the 3rd respondent in the said appeals issued notices to the 3 appellants-assessees to the effect that they did not submit their returns for the year ending 1958-.39 and failed to pay purchase-tax in respect thereof and asked them to show cause why they should not be prosecuted for the said default. The appellants filed 3 petitions under Art. 226 of the Constitution in the High Court of Punjab questioning the validity of the relevant provisions of the Act and for appropriate reliefs. A Division Bench of the High Court heard the petitions, along with other connected petitions and dismissed the petitions of the appellants so far as they related to purchase-tax on oil seeds. Hence the appeals4. Civil Appeals Nos. 39 to 43 of 1965 relate to purchase-tax on iron. The appellants carry on business in rolling steel at Gobindgarh. They purchase steel scrap and steel ingots and convert them into rolled steel sections. Under the Act, the assessing authority imposed purchase-tax at the rate of 2 per cent on the purchase of steel scrap and steel ingots made by them during the period April 1, 1958 to March 31, 1959 for making rolled steel section and selling the same. The appellants filed petitions under Art. 226 of the Constitution in the High Court for appropriate writs for quashing the orders of the assessing authorities and for prohibiting them from levying purchase-tax on the goods purchased and for refund of the tax illegally collected from them. A Division Bench of the High Court dismissed the petitions. Hence the appeals5. Appeals Nos. 81 of 1965 and 540 of 1965 relate to purchase-tax on cotton. The appellants in Civil Appeal No. 81 of 1965 are the trustees of Birla Education Trust. They own a cotton and textile mill Bhiwani. They purchase cotton from various dealers in Punjab and outside for the manufacture of yarn and cloth. By an order, dated March 11, 1962, the District Taxation Officer, Hissar, imposed purchase-tax on the appellants in respect of the cotton purchased by them for the assessment years 1958-59 and 1959-60. The appellant in Civil Appeal No. 540 of 1965 is a limited company carrying on the business of producing and selling yarn. For the purpose of its business it acquires cotton from commission agents. It is a registered dealer under the Act. The Excise and Taxation Officer Hissar, by his order dated November 29, 1961, assessed the appellant to purchase-tax for the assessment year 1958-59 in respect of the cotton purchased by it and so too on January 27, 1962, he had taken proceedings for making assessment to purchase tax for the assessment year 1959-60 in respect of the same commodity. The appellants in both the appeals filed petitions under Art. 226 of the Constitution in the High Court questioning the validity of the said orders. The said writ petitions were dismissed by a division Bench of the High Court. Hence the appealsThe High Court of Punjab held that S. 5 of the Act was void as it gave an unlimited power to the executive to levy sales tax at a rate which it thought fit. But it held that the amendment of Section 5 by the Punjab Act l9 of 1952 cured the defect in the said Act and had the effect of giving a new life to it.

Reasoning:
10. The law on the subject is fairly well settled, though difficulties are met in its application to each case. In Corporation of Calcutta v. Liberty Cinema, 1965-2 SCR 477  : (AIR 1965 SC 1107  ) on which Mr. Ganapati Iyer relied relates to a levy imposed on cinema houses under the Calcutta Municipal Act (33 of 1951). There, the majority held that the levy therein was a tax, that the fixing of a rate of tax was not of the essence of legislative power, that the fixing of rates might be left to a non-legislative body and that when it was so left to such a body, the Legislature must provide guidance for such fixation. The majority held in that case that such a guidance was found in the monetary needs of the Municipality for discharging the functions entrusted to it under the ActIf this decision is all authority for the position that the Legislature can delegate its power to a statutory authority to levy taxes and fix the rates in regard thereto, it is equally an authority for the position that the said statute to be valid must give a guidance to the said authority for fixing the said rates and that guidance cannot be judged by stereotyped rules would depend upon the provisions of a particular Act. To that extent his judgment is binding on us. But we cannot go further, and hold the learned counsel for the respondents asked us to do, that whenever a statute defines the purpose or purposes for which a statutory authority is constituted and empowers it to levy a tax that statute necessarily contains a guidance to fix the rates; it depends upon the provisions of each statuteWe cannot accept this argument for three reasons, namely, (1) the decision of this Court in 1965-2 SCR 477  : (AIR 1965 SC 1107  ) should be confined only to the provisions of the Calcutta Municipal Act wherein this Court found a guidance; (2) the provisions of the Sales Tax Act including the preamble, do not disclose any policy or guidance to the State for fixing the rate; and (3) the general constitutional power to impose taxes has no relevance for discovering a statutory policy under a particular Act12. Nor does the decision of this Court in State of Madras v. Gannon Dunkerley and Co., Ltd.*lend support to the argument so widely advanced by the learned counsel. That case has nothing to do with the fixation of rates of taxes15. Further citation is unnecessary, for the principle of excessive delegation is well esettled and the cases are only illustrations of the application of the said principle. The law on the subject may briefly be stated thus :"The Constitution confers a power and imposes a duty on the legislature to make laws. The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct. Obviously it cannot abdicate its functions in favour of another. But in view of the multifarious activities of a welfare State, it cannot presumably work out all the details to suit the varying aspects of a complex situation. It must necessarily delegate the working out of details to the executive or any other agency. But there is a danger inherent in such a process of delegation. An overburdened legislature or one controlled by a powerful executive may unduly overstep the limits of delegation. It may not lay down any policy at all; it may declare its policy in vague and general terms; it may not set down any standard for the guidance of the executive; it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a Court to hold on a fair, generous and liberal construction of an impugned statute whether the legislature exceeded such limits. But the said liberal construction should not be carried by the Courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the Court to strike down without any hesitation any arbitrary power conferred on the executive by the legislature."See 1961-1 SCR 341   at pp. 356-357 : (AIR 1961 SC 4   at pp. 11-12)The argument of the learned counsel that such a policy could be gathered from the constitutional provisions cannot be accepted, for, if accepted, it would destroy the doctrine of excessive delegation. It would also sanction conferment of power by Legislature on the executive Government without laying down any guidelines in the Act. The minimum we expect of the Legislature is to lay down in the Act conferring such a power of fixation of rates clear legislative policy or guidelines in that regard. As the Act did not prescribe any such policy, it must be held that Section 5 of the said Act, as it stood before the amendment, was voidIt will be seen that Section 4 is a charging section, that Section 5 provides for fixation of rates and that Section 6 prescribes for exemptions. Section 4 is made subject to Sections 5 and 6. If Section 5 is struck out will Section 4 become void ? This will depend upon two questions, namely, (i) whether Section 5 is a charging section ? and (ii) even if Section 4 alone is the charging section, as it is made subject to Section 5 and as the section subject to which it is made was stillborn, whether Section 4, on the application of the doctrine of severance, becomes voidThe only difference between Income-tax Act and the present Act is that while in the Income- tax Act Section 3 thereof does not expressly make the liability subject to the provisions of the Finance Act which fixes the rate, under the Sales Tax Act in question Section 4 thereof in terms is made subject to Section 5.But under both the Acts there is a clear distinction between chargeability and the quantification of tax. While it is true that the tax cannot be realised without it being quantified, the non-quantification of the liability will not destroy the liability under the charging section. The liability has to be distinguished from its enforceability. It cannot be said, and indeed it is not said that the Income-tax Act has no legal existence till the Finance Act is made, though till the Finance Act is made it cannot be enforced. But reliance is placed on Section 67-B of the Income-tax Act in support of the contention that its existence in the statute book keeps the Act alive, for the rate prescribed by the previous Finance Act is applicable till the new Finance Act is passed. But it will be noticed that the Courts decision was not based on the existence of the said provision but on that of charging section itself.It follows that striking out Section 5 does not make Section 4 void, though till an appropriate section is inserted it remains unenforceable21. It was argued that the Act could not be said to be stillborn as it contained certain provisions independent of the Madras Act, viz., a section which provided for the appellate tribunal and the schedule. But it was pointed out that the core of the taxing statute was in the charging section and that the remaining sections had no independent existence. In the present case the charging section was intact and what was struck or was only the section providing for rates. It cannot, therefore, be said that when Section 5 was struck out, Section 4 or other sections fell with it22. It was then contended that even if the whole Act was not stillborn, Section 5 was non est. that the amending Act did not insert a new Section 5 but purported to amend the earlier Section, which was not in existence. Now under the East Punjab General Sales Tax (Seconds Amendment) Act 1952 (Act No. 19 of 1952) Section 5 of the East Punjab General Sales Tax Act, 1948 was amended. Section 2 of the said amending Act says :"In sub-section (1) of Section 5 of the East Punjab General Sales Tax Act, 1948, after the word rates the following words shall be inserted and shall be deemed always to have been so inserted, namely : - not exceeding two pice in a rupee."No doubt in term the section inserts the words "not exceeding two pice in a rupee" in Section 5. If Section 5 is inserted in the Act by the Amending Act with the said words added, there cannot possibly be any objection for that would be an amendment of an existing Act. But in substance the amendment brings about the same effect. The words "shall be deemed always to have been so inserted" indicate that in substance Section 5, as amended, is inserted in the Act with retrospective effectHere we are concerned with sales-tax. If the Act had said "2 pice in a rupee" it would be manifest that it was a clear guidance. But as the Act applies to sales or purchases of different commodities it had become necessary to give some discretion to the Government in fixing the rate. Conferment of reasonable area of discretion by a fiscal statute has been approved by this Court in more than one decision : see Khandige Sham Bhat v. Agricultural Income-tax Officer, Kasaragod, l963-3 SCR 809   : (AIR 1963 SC 591  ). At the same time a larger statutory discretion placing a wide gap between the minimum and the maximum rates and thus enabling the Government to fix an arbitrary rate may not be sustained. In the ultimate analysis, the permissible discretion depends upon the facts of each case. The discretion to fix the rate between 1 pice and 2 pice in a rupee is so insignificant that it is not possible to hold that it exceeds the permissible limits. It follows that Section 5 of the Act as amended is validThe first limb of the argument is that the definition of "purchase" is more comprehensive than the definition of "sale" under the Indian Sale of Goods Act and, therefore, the State Legislature was incompetent to make a law under entry "sale or purchase." in List II of the 7th Schedule to the Constitution. The constitutional position is well settled. Entry 54 of List II of the 7th Schedule to the Constitution reads :"Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I."In 1959 SCR 379     at pp. 397-398 : (AIR 1958 SC 560   at p. 567), Venkatarama Aiyar, J., speaking for the Court, observed :"Thus, according to the law both of England and India, in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods which of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Unless all these elements are present, there can be no sale. Thus, if merely title to the goods passes but not as a result of any contract between the parties, express or implied, there is no sale"This Court also held that the State Legislature, by enlarging the definition of "sale", could not include transactions which were not sales according to the well established concepts of law under the Law of Contract or the Sale of Goods Act : see Sales Tax Officer v. Budh Prakash Jai Prakash, AIR 1954 SC 459   and George Oakes (Private) Ltd. v State of Madras, AIR 1962 SC 1037  25. Bearing that in mind let us look at Cl. (ff) in S. 2 of the Principal Act in which the said clause was inserted. The ingredients of the definition of "purchase" are as follows : (i) there shall be acquisition of goods, (ii) the acquisition shall be for cash or deferred payment or other valuable consideration, (iii) the said valuable consideration shall not be other than under a mortgage, hypothecation, charge or pledgeThe essential requisite of sale are (i) there shall be a transfer of property or agreement to transfer property by one party to another; and (ii) it shall be for consideration of money payment or promise thereof by the buyer. A sale and a purchase are different aspects of the same transaction. If we look at it from the standpoint of a purchaser it is purchase and if we look at it from the standpoint of the seller it is a sale. Whether purchase or sale it shall have the said ingredients both in common law and under the Indian Contract Act. Price has been defined in the Sale of Goods Act to mean money consideration for the sale of goods : see S. 2 (10) of the Indian Sale of Goods Act. It will, therefore, be seen that the definition of purchase in the Act prima facie appears to be wider in scope than sale, While transfer of goods from one person to another is the ingredient of sale in general law, acquisition of goods, which may in its comprehensive sense take in voluntary as well as involuntary transfers is an ingredient of purchase in Cl. (ff). While price, i.e., money consideration, is the ingredient of sale, cash, deferred payment or any valuable consideration is an ingredient of purchase. But a closer scrutiny compels us to give a restricted meaning to the expression acquisition" and "price". Acquisition is the act by which a person acquires property in a thing. Acquire" is to become the owner of the property. One can, therefore, acquire a property either by voluntary or involuntary transfer. But the Sales Tax Act applies only to "sale" as defined in the Act. Under Cl. (ff) of S. 2 of the Act it is defined as a transfer of property. As purchase is only a different aspect of sale, looked at from the stand-point of the purchaser, and as the Act imposes tax at different points in respect of sales, having regard to the purpose of the sale, it is unreasonable to assume that the Legislature contemplated different categories of transactions when the taxable event is at the purchase point. Whether it is sale or purchase the transaction is the same. If it was a transfer inter vivos, in the case of a sale, it must equally be so in the case of a purchase. Context, consistency and avoidance of anomaly demand a restricted meaning. That it must only mean transfer is also made clear by the nature of the transactions excluded from the acquisition, namely, mortgage, hypothecation, charge or pledge - all of them belong to the species of transfer. We must, therefore, hold that the expression "acquisition" in Cl. (ff) of S. 2 of the Act means only "transfer"26. Now, coming to the expression "price" it is no doubt defined in the Sale of Goods Act as "money consideration". Cash or deferred payment in Cl. (ff) of S. 2 of the Act satisfied the said definition. The expression "valuable consideration" has a wider connotation, but the said expression is also used in the same collocation in the definition of "sale" in S. 2 (h) of the Act. The said expression must bear the same meaning in Cl. (ff) and Cl. (h) of S. 2 of the Act. It may also be noticed that in most of the Sales Tax Acts the same three expressions are used. It has never been argued or decided that the said expression means other than monetary consideration. This consistent legislative practice cannot be ignored. The expression "valuable consideration" takes colour from the preceding expression "cash or deferred payment". If so, it can only mean some other monetary payment in the nature of cash or deferred payment. We, therefore, hold that Cl. (ff) of S. 2 of the Act is not void for legislative incompetenceBut a close scrutiny of Cl. (ff) of S. 2 discloses that there is a reasonable classification in the said definition. The raw goods purchased by a manufacturer are transformed on manufacture into some other goods and that is the reason why the Legislature taxes the goods before they lose their identity. But where no manufacturer intervenes there is no such metamorphosis and therefore, the taxable event is the sale. There is certainly a reasonable relation between the object of the statute and the differences between the two categories of transactions. Thedecisions of this Court establish that "in older to be an excise duty (a) the levy must he upon goods and (b) the taxable event must be the manufacture or production of goods.":see Messrs. Shinde Brothers v. Deputy Commissioner, Raichur, Civil Appeals Nos. 1580-1586, 1588 and 1590-1600 of 1966 D/-26-9-66 = (AIR 1967 SC. Thetax has no nexus with the manufacture ofgoods.Thepurpose for which the goods are purchased is only relevant for fixing the taxable event, but the tax is on the purchase of thegoods.That taxable event is fixed before the goods are actually manufactured. We, therefore, hold that the tax under the Act is a purchase tax and not an excise dutyBut this argument misses the point that goods purchased and the goods sold are not identical ones. Manufacture changes theidentity., the same goods are not taxed at two stagesBut a perusal of the judgment shows that this Court only held that refined oil produced out of seeds was only an intermediate stage in the manufacture and was, therefore, not liable to excise duty. On the other hand, the dictionary meaning of "manufacture" is "transform or fashion raw materials into a changed form for use."When oil is produced out of the seeds the process certainly transforms raw material into different article for use. We cannot, therefore, accept this contentionBefore the High Court this contention was not pressed. That apart, it is clear that scrap iron ingots undergo a vital change in the process of manufacture and are converted into a different commodity, viz., rolled steel sections. During the process the scrap iron loses its identity and becomes a new marketablee processis certainly one of manufactureIn these and connected appeals we are concerned only with two periods - the first period upto October 31, 1958 and the second period from November 1, 1958 to March 31 196034. Pursuant to the provisions of S. 15 of the Central Sales Tax Act, before it was amended, Act 7 of 1958 added Cl. (ff) to S. 2 of the Principal Act fixing the same stage indicated by S. 15 of the Central Act, i.e., the stage when the purchase is made by a dealer for use in the manufacture ofgoods.This section was amended by Act 13 of 1959 and Act 24 of 1959. Under the later amendment in Cl. (ff) of S. 2 for the words "goods for use in the manufacture of goods for sale" the words "goods specified in Schedule C for use in the manufacture of goods for sale" were substituted, that is to say, the stage for taxation prescribed in the earlier definition was amended. It may be recalled that under the Central Sales Tax Act, as amended, the description of the stage was omitted, but that does not affect the question, for that description is maintained even under the amended Cl. (ff).It follows from the said discussion that the Punjab General Sales Tax Act, during the crucial period which is the subject-matter of these appeals, in terms fixed a stage for taxation, i.e., the stage of purchase by a dealer for use in the manufacture ofgoods.e are, therefore, no merits in this contention either36. We have already held in another context that there are no merits in the second pointe firstpoint need not detain us, as in the High Court no specific point we raised in that regard38. On the third point also no adequate material was placed in the Court below and, therefore, it does not call for our consideration.