Case: M/S. J. K. Jute Mills Co. Ltd Vs. The State Of Uttar Pradesh And Another

1. The petitioner is a company incorporated under the Indian Companies Act, its registered office being at Kanpur in the State of Uttar Pradesh, and it is carrying on business in the manufacture and sale of jute goods. By a notification dated March 31, 1956, the State of Uttar Pradesh imposed a tax of one anna in the rupee on the sale proceeds of jute. Previously thereto, the tax payable on sale of jute was six pies in the rupee. This notification having been struck down by the High Court of Allahabad as unauthorised and inoperative, the State legislature enacted the U. P. Sales Tax (Validation) Act, 1958 (U. P. Act XV of 1958), hereinafter referred to as the Validation Act, validating the said notification as from March 31,was under this provision that the U. P. Government had issued a notification on June 8, 1948, imposing a tax of six pies in the rupee on the sale of jute.3. In exercise of the power conferred by Art. 213(1) of the Constitution, the Governor of Uttar Pradesh issued on March 31, 1956, Ordinance No. IX of 1956 and that was published in the Official Gazette on the same date. Under this Ordinance the whole of sub-sec. (2) of S. 3-A as it then stood was deleted and the followingIf the State Government makes a declaration under sub-sec. (1), it may further declare that the turnover in respect of such goods shall be liable to tax at such rate not exceeding one anna per rupee as may be specified."4. The effect of this provision was to enact one ceiling rate of one anna per rupee on the sale proceeds for all goods leaving it to the State to fix within the ceiling such rates of tax for such goods as it might determine.5. On the same date, the Government published the following notification No. ST. 905/X on which the entire controversy has arisen."In exercise of the power conferred by S. 3-A of the U. P. Sales Tax Act,1948, as amended from time to time, and in supersession of all previous notifications on the subject, the Governor of Uttar Pradesh is hereby pleased to declare that the turnover in respect of the goods specified in the List below shall not with effect from April 1, 1956, be liable to taxin the case of goods imported from outside Uttar Pradesh at the point of sale by importer; and(b) in the case of goods manufactured in Uttar Pradesh, at the point of sale by the manufacturer;and the Governor is further pleased to declare that such turnover shall with effect from the said date be taxed at the rate of one anna per rupeeList......................18. Jute goods"In due course, the U. P. Sales Tax Ordinance No. IX of 1956 was replaced by the U. P. Sales Tax (Amendment) Act XIX of 1956, and that came into force on May 28, 1956. It merely reproduces the terms of the Ordinance No. IX of 1956 with this modification which is consequential, that the amended section including S. 3-A shall "be deemed to have effect on and from the first day of April, 1956". If notification No. ST. 905/X dated March 31, 1956, is valid there is no question that the petitioner would be liable to pay sales tax for the period in question at the rate of one anna per rupee on the sale proceeds.6. One of the dealers who had been assessed to sales tax in accordance with this notification filed an application under Art. 226 in the High Court of Allahabad calling in question its validity and this proved successful, the court holding that there was no power in the State to issue the impugned notification under S. 3-A on March 31, 1956, as that section was itself to come into force only on April 1, 1956, vide Adarsh Bhandar v. Sales Tax Officer, (S) AIR1957 All 475 (FB). The correctness of this decision is not under challenge in these proceedings. We do not, therefore, desire to express any opinion on it.7. With a view to remove the defect pointed out in (S) AIR 1957 All 475   (FB), the State legislature passed the U. P. Sales Tax (Amendment) Act XXIV of 1957, That Act received the assent of the President on August 31, 1957, and was published on September 3, 1957. It runs, so far as is material, assub-section (2) of S. 1 of the U. P. Sales Tax (Amendment) Act, 1956, the following shall be and be deemed to have always beenSection, so much of S. 3, as relates to the substitution of the second proviso to sub-sec. (1) of S. 3 of the U. P. Sales Tax Act, 1948 (hereinafter called principal Act) and S. 4 shall have effect on and from the 31st day of March, 1956."The result of this amendment was that S. 3-A was given retrospectively operation from March 31, 1956, instead of April 1, 1956, as originally enacted. The intention behind the legislation is obvious. If the impugned notification was, as held in (S) AIR 1957 All 475   (FB) invalid, because it was issued before S. 3-A was in operation, that objection could no longer hold good as that section would now operate from a point of time anterior to the issue of the notification. If the State thought that this legislation would give a quietus to the controversy, they were sadly mistaken. After the Amendment Act of 1957 came into force, another dealer who was sought to be assessed pursuant to the notification dated March 31, 1956, filed a petition under Art. 226 before the Allahabad High Court and raised the contention that as the Amendment Act merely amended S. 3-A and did not in terms validate the impugned notification, no proceedings could validly be taken under that notification and that therefore the proposed levy was illegal. This contention was again upheld by a Full Bench in Firm Bangali Mal v. Sales Tax Officer, AIR 1958 All 478   which held that there was a difference between the existence of a power and its actual exercise, that while by reason of Act XXIV of 1957, a power had been conferred on Government to issue a notification on March 31, 1956, the notification actually issued on that date could not be referred to that power, that it was in exercise of the power supposed to have been conferred by S. 3-A as it stood on March 31, 1956, and that in consequence the impugned notification was not saved by the new Act.8. This decision set the legislature again on the move and that brings us to what may be said to be the final round in the game. The State legislature enacted a fresh legislation for the purpose of effectuating the impugned notification. That was U. P. Sales Tax Validation Act XV of 1958. It received the assent of the President on May 3, 1958 and was published in the Official Gazette on May, 6, 1958. The preamble to the Act states that "it is expedient to provide for the validation of certain notifications issued under the U. P. Sales Tax Act, 1948 (U. P. Act XV of 1948) and any action taken in pursuance thereof". Section 3 of the Act which deals with the present matter runs asValidation of certain notifications and action taken in pursuance thereof.Notwithstanding any judgment, decree or order of any court, the notifications specified in Part A, Part B and Part C of the Schedule shall be deemed to have been issued in exercise of the powers conferred respectively by S. 3, S. 3-A and S. 4 of the U. P. Sales tax Act, 1948, as if the said sections were in force on the date on which the notifications were issued in the form in which they were in force immediately before the commencement of this Act and all the said notifications shall be valid and shall be deemed always, to have been valid and shall continue in force until amended, varied or rescinded by any notification issued under any of the said section.2. Anything done or any action taken (including any order made, proceeding taken, direction issued, jurisdiction exercised, assessment made or tax levied or collected) purporting to have been done or taken in pursuance of any of the notifications specified in the Schedule shall be deemed to be and to have been validly and lawfully done or taken."In Part B are set out the notifications issued in exercise of the powers conferred by S. 3A of the U. P. Sales Tax Act, 1948, and one of them is the impugned notification No. ST. 905/X. If this legislation is valid, the impugned notification stands validated and the petitioner would be liable to pay tax in accordance therewith.

Reasoning:
We are wholly unable to appreciate this contention. The object of the legislation as stated in the long title and in the preamble to the Act was to validate the impugned notification in relation to the amended section. Schedule B to the Act expressly mentions that notification. And if we are now to accede to the contention of the petitioner, we must hold that though the legislature set about avowedly to validate the notification dated March 31, 1956, it failed to achieve that object. A construction which will lead to such a result must, if that is possible, be avoided. The words, "in the form in which they were in force immediately before the commencement of this Act", no doubt occur after the word, "notifications". But then the words, "in the form" can have no reference to the impugned notification, because it had never changed form, whereas they were quite appropriate to S. 3A, because it had been amended. It should further be noted that the Validation Act was published both in Hindi and in English, and both of them were authorised versions. The words in the Hindi version make it clear beyond all doubt that the words, "in the form in which they were in force immediately before the commencement of this Act" qualify the word "sections" and not the word "notifications."That is the view expressed by a Bench of the Allahabad High Court in Haji Lal Mohammad Biri Works v. Sales Tax Officer AIR 1959 All 208, on a comparison of the two versions, and we are in agreement with it. There would have been no scope for this argument if transposing the words, the section read, "as if the said sections were, in the form in which they were in force immediately before the commencement of this Act, in force on the date on which the notifications were issued." But even in its present setting that is the meaning of the section, and the impugned notification must be held to be within the saving of the Validation Act.But it is urged on the strength of certain observations in 1942 FCR 90: (AIR 1942 FC 33), that a sales tax is a tax on the occasion of sale, and that therefore it could not be imposed with retrospective operation. This contention is, in our judgment, wholly withoutthe point for decision in that case was whether a tax imposed by a Provincial legislature on the sale of oil by a person who manufactured it was bad on the ground that it was in essence an excise duty. While a sales tax could be imposed by a Provincial legislature, an excise duty could be imposed only by the Federal legislature. In holding that the tax in question was a sales tax and not an excise duty, the court observed asduties of excise which the Constitution Act assigns exclusively to the Central Legislature are, according to the Central Provinces Case, In the matter of Central Provinces and Berar, Sales of Motor Spirit and Lubricant Taxation Act, 1938, 1939 FCR 18: (AIR 1939 FC 1), duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity taxed. The tax on the sale of goods, which the Act assigns exclusively to the Provincial Legislatures, is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer." (p. 101 (of FCR): (p. 35 of AIR)).In the context, the words, "on the occasion of the sale" have reference to the character of the transaction and not to the point of time at which the duty becomes leviable, and they have no bearing on the question as to when such a tax could besee no force in this contention. It is no doubt true that a sales tax is, according to accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation. But it is not an essential characteristic of a sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the legislature to impose a tax on sales conditional on its making a provisions for sellers to collect the tax from the purchasers. Whether a law should be enacted, imposing a sales tax, or validating the imposition of sales tax, when the seller is not in a position to pass it on the consumer, is a matter of policy and does not affect the competence of the legislature. This question is concluded by the decision of this court is Tata Iron and Steel Co., Ltd. v. State of Bihar, (1958) SCR 1355  : (AIR 1958 SC 452  ). The following observations of Das, C. J., bearing on this question might be quoted:"Under the 1947 Act the primary liability to pay the sales tax, so far as the State is concerned, is on the seller. Indeed before the amendment of the 1947 Act by the amending Act the sellers had no authority to collect the sales tax as such from the purchaser. The seller could undoubtedly have put up the price so as to include the sales tax which he would have to pay but he could not realise any sales tax as such from the purchaser. That circumstance could not prevent the sales tax imposed on the seller to be any the less sales tax on the sale of goods. The circumstances that the 1947 Act, after the amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from the purchaser does not do away with the primary liability of the seller to pay the sales tax. This is further made clear by the fact that the registered dealer need not, if he so pleases or chooses, collect the tax from the purchaser and sometimes by reason of competition with other registered dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax. This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which, by the express provisions of the law, is cast upon the seller. The buyer is under no liability to pay sales tax in addition to the agreed sale price unless the contract specifically provides otherwise. See Love v. Norman Wright (Builders) Ltd., 1944-1 KB 484. If that be the true view of sales tax then the Bihar Legislature acting within its own legislative field had the powers of a sovereign legislature and could make its law prospectively as well as retrospectively." (pp 1378-1379 (of SCR): (p. 463 of AIR)must, therefore, hold that the Validation Act is not ultra vires the powers of the legislature under entry 54, for the reason that it operatesis a consideration which is wholly foreign to the present question. The point which we have got to decide is whether the Validation Act is ultra vires. That has to be determined solely on the construction of entry 54 in List II in the seventh Schedule, and any other provisions of the Constitution bearing on the question. Even assuming that the provisions of the U. P. Sales Tax Act XV of 1948 contemplate a levy of tax in futuro that does not affect the power of the Legislature under Entry 54 to enact a law with retrospective operation. It can only result in those provisions being unenforceable as regards the levy under the impugned notification. Dealing with a similar contention in 1958 SCR 1422: (AIR 1958 SC 468  ), this court observed:"It is also contended that under the Sales Tax Acts, the levy of tax is annual and the rules contemplate submission of quarterly returns and payment of taxes every quarter on the admitted turnover, and that a conditional legislation under which payment of tax will become enforceable in futuro would be inconsistent with the scheme of the Act and the rules. But this argument, when examined, comes to no more than this that the existing rules do not provide a machinery for the levy and the collection of taxes which might become payable in future, when Parliament lifts the ban. Assuming that that is the true position, that does not affect the factum of the imposition, which is the only point with which we are now concerned. That the States will have to frame rules for realising the tax which becomes now payable is not a ground for holding that there is, in fact, no imposition of tax." (p. 1454 (of SCR): (p. 483 of AIR) ).17. None of the grounds urged by the petitioner in support of the contention that the Validation Act is ultra vires can be sustained. In the result we must hold that the Validation Act is intra vires, and the impugned notification dated March 31, 1956, stands validated by it.