Case: Ganga Sugar Company Limited, Etc Vs. State of Uttar Pradesh and Others Etc

e are concerned with a levy under the U.P. Sugarcane (Purchase Tax) Act, 1961, (for short, the Act). Sales tax, item 54 in the State List, was once described in the thirties by a far-sighted Chief Minister and nation-builder, Sri C. Rajagopalachariar, as a Kamadhenu. True to his prescience, every State, today, relies heavily on this levy for which the common man eventually pay s heavily. Uttar Pradesh, which grows sugarcane and runs sugar mills in the private sector, hit upon a tax on the purchase of cane by millers who manufactured sugar and Khandasari at differential rates, but it is a heritage from the thirties.Many Stales in India grow sugarcane, all of which, save negligible quantities, suffer crushing and its sucrose content is recovered as sugar, khandasari and, on a cottage industry basis, as gur. An dhra Pradesh, Bihar, Gujarat, Haryana, Kerala, Karnataka, Maharashtra, Madhya Pradesh, Punjab, Pondicherry, Tamil Nadu and Uttar Pradesh not only grow sugarcane but enjoy purchase tax, a majority of which levy By weight rather than on price. And we cannot lose sight of the All India impact when the law is laid down under Article 141. Judgments of this Court are decisional between litigants but declaratory for the nation.6. Sugar is an export item and, of course, is a daily ne cessary at home. Uttar Pradesh, according to the Report of the Tariff Commission on the cost Structure of the Sugar Industry and the Fair Price for Sugar (1969) has the heaviest concentration of sugar mills in the country but several of th em are uneconomic and some sick. Modernization is a message lost on U.P. sugar, manufacture and the cane cultivators fortune hangs on the fluctuating prosperity of the marginal millers. The sugar and sugarcane economy is the victim of a variety of forces which add to the precariousness and poor efficiency of factories The area under cultivation recedes or expands with the decrease or increase of crushing by the factories and the misery of losses and instability of acreage un der cane cultivation have played havoc with agriculturists. Dithering prices of sugar, export promotion as a policy, Levy of sugar to feed the poor and a number of other intricate economic facts have made the fiscal manoeuvring a matter of expe rtise and social justice.While, on a pan-Indian survey, wide variations in quality of cane and efficiency of mills may be found, within Uttar Pradesh, broadly speaking, the sucrose content differs but little and the percentage of recovery al so is more or less the same or factories in the State save where the machinery effects efficiency. So much so, the price of sugarcane, usually decided by the Central Governments notification of minimum price, depends on its weight an d sucrose recovery and, in practice, within a region both gravitate towards a common point. Moreover, the Uttar Pradesh sugar map reveals, as pointed out, by the High Court, that the more you crush, the more you produce; the more you produce, the more you earn. So the quantity of sugarcane crushed by a factory is an index of its earnings. The relevance of this relationship between consumption of quantity by the mills, their sugar production and quantum of profits, to the quest ion of tax incidence, its equity and equality will be taken up by us later on. Prima facie, there is a cane-sucrose correlation for the State. Apart from it, the more the cane purchased, the more the profits spun; and the justice of fixing the tax t ag on the weight of cane purchased argues itself. And what makes for just impost of the tax burden is the antithesis of arbitrariness. When the majority of the sugarcane States have imposed purchase tax by weight, net value, a reinforcement of sor ts is added to this inference. The High Court observes, based on thesefacie, purchase tax by weight would ensure more stable revenue over the years than the purchase tax by the price of sugarcane, which rises and falls in a four years cycle".This statement has not been upset by any facts placed before the court and ipse dixits of counsel, sans data, are airy economics.Another market eccentricity must be noticed. Business cycles of boom and slump have been the bane of the sorry sugar and sugarcane story of that State, and fiscal policy to stabilise a wobbling market G economy has been presumably evolved thoughtfully. The Report we have referred to bears testimony to this cyclical fact or and the High Court has drawn inferences therefrom. Let us view the inequity of the impost had it been related to the price of cane. The High Court gives someprice of sugarcane is, according to the Report of the Tariff Commission, determined by the law of supply and demand in a particular year. Accordingly it may vary disproportionately in various regions of the State. One factory may pay more for the same quantity of sugarcane than the other. Indeed, the Basti Sugar Mills Company Limited has made that allegation. The Basti Sugar Mills Company Limited paid Rs. 7, 00, 000/- less than the Seksaria Sugar Mills Private Limited for the same quantity of s ugarcane. If the quantity of sugar manufactured by them in that year is more or less the same, their earnings will be the same. So - tax b. price would be more oppressive on the Seksaria Sugar Mills Private Limited. On t he other hand, as tax is by weight, both of them would have paid the same amount of tax in that year. Neither of them could complain of unfair or inequitable incidence of taxation.Of course, stabilization or uniform fixation of cane prices is the annual endeavour of Central and State Governments and this reduces disparity among millers, except the factor of efficiency. Variations in cane transport costs ale minimized and taken care of by zoning purchases statuto rily, and then weight-price correlation becomes more stable and sober in practice that abstract arguments based on printed paper and flight of fancy may luridly suggest. The life of the law is real life, not little-logic and the High Courts deduc tions, though a lay exercise, cannot be faulted as fallacious by lay advocacy.Regrettably, we have no contrary statistics and the learned judges, have stressed this weakness. We agree with those observations and accept them since nothing urged before us has furnished factual contradiction of these premises:"The petitioners have not supplied for any period figures of actual prices paid by them, actual quantity of cane crushed by them, actual quantity of juice derived, actual quantity of sugar produced and their earnings. They have not tried to prove that the standard of price would be more just and equitable than the standard of weight for levy of purchase tax. From t he meagre data gleaned from the Tariff Commissions Report, it is not possible to take the view that tax by weight is unfair and inequitable. And Article 14 ensures to the citizen the basic principle on which rests justice under the law. It assures to the citizen the ideal of fairness (Corpus Juris Secundum Vol. XVI-A p. 296). The petitioners have failed to discharge the heavy burden of proof".Abstract submissions flung from imagination do not each t he point of forensic take-off, if we may add. Tentatively, subject to further examination, the conclusion of the High Court commends itself toincidence of purchase tax by weight appears to be more related to the earning capacity of the assessee than the incidence of tax by price ofclinch the issue, as it were, the High Court windspetitioners have not argued that the impugned provision is confiscatory in nature. I have already shown, that tax by weight has got fairer relation to the production of sugar by an earning of a factory than tax by price. Consequently, no one can fairly complain that the impugned provision treats unequals as equals. Equal crushing attracts equalthe tax and the cess contemplated by the 1938 Act went by the maund and although the cess was to be levied from the seller he was allowed to recover it from the purchaser. The 1938 Act gave place to the U.P. Sugarcane (Regulations of Supply and Purchase) Act, 1953, which created a scientific scheme, created a Fund, injected the concept of cane growers cooperatives and provided for levy of cess. The cess part of the Act was replaced by the U.P. Sugarcane Cess Act 1956. We must remember that by now the Government of India Act 1935 had ceased to exist and the Constitution of India had come vibrantly into being with the fundamental rights of Part III. The cess under the 1956 Act was attacked and fell victim to a constitutional challenge and this Court in Diamond Sugar M ills Case declared the Cess Act ultra vires. The consequence of this mortality was the incarnation of the U.P. Sugarcane Purchase Tax Act 1961 which is being impeached as ultra vires in these appeals. When cess failed, the State would have been constrained to refund nearly half a hundred crores of rupees. Validation by parliamentary legislation in conformity with the Constitution was, therefore, done. Eventually, the levy of a purchase tax was enacted into law by the U.P. Sugarcane (Purchase Tax) Act 1961 (referred to as the Act). In a fiscal sense, the Purchase Tax Act is a reincarnation of the Cess Act but, in a legislative sense, it is an independent statute with a different source of power, impact and structure. While the appellants have a case that this fiscal history substantiates their thesis that the present purchase tax is a disingenuous disguise, the State contends that its power to impose a purchase tax is well within List II, Entry 54.

Reasoning: It is significant that 40 years ago the tax for the benefit of cane growers was linked up with weight. It is not as if a freak flash flit past the legislative mind of linking up purchase tax with weight of cane in 1961 only. Apparently, measure of tax by weight of stuff in the peculiar circumstances of sugarcane economy has been tested by time and metabolized into the consciousness of the affected Trade and theanatomy of the Act, to the extent relevant, may now be envisaged. Section 3 is the charging section and creates a Liability on the purchase of sugar cane payable by a factory owner or a unit owner. The rate is one rupee 25 Paise per quintal and 50 Paise per quintal for factories and unit respectively. The taxing event is the purchase transaction by the owner of a factory or a unit. An option is provided for in the case of owners of units to pay tax on an assumed quantity prescribed by Government. This is obviously to simplify and to benefit owners of Units who are presumably tiny producers of khandsari sugar. By definition, factories and units fall under different categories, the former being geared to manufacture of sugar by power, the latter being engaged in the production of Gur, Rab or Khandsari sugar in crushers driven by mechanical power. A classification based on scale of operations, product manufactured an other substantial differences bearing on production capacity, profits of business and ability to pay tax, is constitutionally valid and the feeble contention counsel put forward that there is discrimination between owners of factories and units must fail without much argument.Section 3A, intended to guard against escape of tax, ensures that the sugar produced out of the sugarcane transaction exigible to tax shall virtually stand security, if we may crudely express ourselves that way. The sugar produced in the factory shall not be removed until the tax levied under Section 3 is paid.We reject all the three contentions and hold that the Act can parachute to safety despite the ineffectual artillery.Industry as a legislative topic is of large and liberal import; true. But what peripherally affects cannot be confuse with what goes to the heart. An acquisition of land for sugar mills or of sugar mills may affect the industry but is not an action in the legislative field forbidden for the States. [See the Kannan Devan Hills Produce Company Ltd. case (supra) ]. Sales tax on raw materials going to a factory may affect the costing process or the manufacture but is not legislation on industrial process or allied matters. Indeed, if the State Legislature cannot go anywhere near measures which may affect topics reserved for Parliament a situation of reduction ad absurdum may be reached.The further refinemen t made by counsel that here was legislation confined to factories and units only, the other buyers of sugarcane being left out, and that therefore the Act was in intent and effect one with respect to the sugar industry has no substance either.28. For one thing, the bulk of the consumption of sugarcane was by factories and khandsari units only and the omission of trivial consumers did not mean that the legislation was not on sugarcane purchases generally. Secondly, it was open to the Legislatu re to make an intelligent choice of the persons on whom the tax should be imposed. Here, the bulk consumers were selected and the marginal buyers omitted. We discern nothing in this policy which legislates upon the sugareither of these submissions has substance, the tax in question must fall to the forces of Articles 14, 19 and 13, especially Art. 14, Art. 19 coming in only consequentially or where expropriation ensues.30. Article 14, a great right by any canon, by its promiscuous forensic misuse, despite the Dalmia decision has given the impression of being the last sanctuary of losing litigants. In present case, the levy which is uniform on all sugarcane purchases, is attac ked as ultra vires, on the score that the sucrose content of various consignments may vary from place to place, the range of variation being of the order of 8 to 10 per cent and yet a uniform levy by weight on these unequals is sanctioned by the Act. Price of cane is commended as the only permissible criterion for purchase tax. The whole case is given away by the very circumstance that, substantially, the sucrose content is the same for sugarcane in the State, the marginal difference being too inconsequential to build a case of discrimination or is blamable on the old machinery. Neither in intent nor in effect is there any discriminatory treatment discernible to the constitutional eye. Price is surely a safe guide but other methods are not necessarily vocational. It depends, practical considerations of the Administration, traditional practices in the Trade, other economic pros and cons enter the verdict but, after a judicial generosity is extended to the legislative wisdom, if there is writ on the status perversity, madness in the method or gross disparity, judicial credulity may snap and the measure may meet with its funeral.Even so, taxing statutes have enjoyed more judicial indulgence This Court has uniformly held that classification for taxation and the application of Article 14, in that context, must be viewed liberally, not meticulously. We must always remember that while the executive and legislative branches are subject to judicial restr aint, "the only check upon our exercise of power is our own sense of self-restraint."31. In the Murthy Match Works case, this Courtprinciples which bear upon classification may be mentioned here. It is true that a Ste may classify persons and objects for the purpose of legislation and pass laws for the purpose of obtaining revenue or other objects. Every differentiation is not a discrimination. But classification can be sustained only if it is founded on pertinent and real differences as distinguished from irrelevant and artificial ones. The constitutional standard by which the sufficiency of the differentia which form a valid basis fo r classification may be measured, has been repeatedly stated by the courts. If it rests on a difference which bears a fair and just relation to the object for which it is proposed it is constitutional. To put it diffe rently, the means must have nexus with the ends. Even so, a large latitude is allowed to the State for classification upon: a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the court will be relucant and perhaps ill-equipped to investigate. In this imperfect world perfection even in grouping is an ambition hardly even accomplished. In this context, we have to remember the relations hip between the legislative and judicial departments of government in the determination of the validity of classification. Of course, in the last analysis courts possess the power to pronounce on the constitutionality of the acts of the other branches whether a classification is based upon substantial differences or is arbitrary, fanciful and consequently illegal. At the same time, the question of classification is primarily for legislative judgment and ordinarily does not become a judicial question. A power to classify being extremely broad and based on diverse considerations of executive pragmatism, the judicature cannot rush in where even the l egislature varilyhere, we may notice the observations in Murthy Match Works (supra).33. Another proposition which is equally settled is that merely because there is room for classification it does not follow that legislation without classification is always unconstitutional. The court cannot strike down a law because it has not made the classification which commends to the court as proper. How can the legislative po wer be said to have been unconstitutionally exercised because within the class a sub-classification was reasonable but has not been made.34. It is well established that the modern State, in exercising its s overeign powers of taxation, has to deal with complex factors relating to the objects to be taxed, the quantum to be levied, the conditions subject to which the levy has to be made, the social and economic policies which t he tax is designed to subserve, and what not.It is well established that classification is primarily for the legislature and becomes a judicial issue only when the legislation bears on its bosom obvious condemnation by way of caprice or irrationality.36. We have discussed ea rlier the history of legislative control, the imposition of tax or cess by weight of cane and the acceptance of that methodology all through the decades without demur by the Trade. Moreover, this Court has negatived an identical argument in a case from Andhra Pradesh (where also a similar levy based on weight of sugarcane is extent) in Andhra Sugar Ltd. Anr. etc. v. State of Andhra Pradesh &ors.(l) The Court thereSetalvad submitted that there can b e no levy of a purchase tax with reference to the tonnage of the cane. We cannot accept this contention. Usually the purchase tax is levied with reference to the price of the goods. But the legislature is competent to levy the tax with reference to the weight of the goods purchased.The contention of Mr. Chatterjee that a purchase tax must be levied with reference to the turnover only is equally devoid of merit. Where the purchase tax i s levied on a dealer, the levy is usually with reference to his turnover, which normally means the aggregate of the amounts of purchase prices. But the tax need not necessarily be levied on a dealer or by reference to his t urnover. It may be levied on the occupier of a factory by reference to the weight of the goods purchased by him.Maybe the discussion is brief but the conclusion is sound, and we concur. Tax on sale or purchase must be on th e occurrence of a taxing event of sale transaction. Beyond that is left to the free play of the legislature, subject, of course, to the contra-indications about capricious, arbitrary or irrational features. It is a superstition, cultivated by familiarity, to consider that all sales-tax must necessarily have nexus with the price of the commodity. Of course, price as basis is not only usual but also safe to avoid uneven, unequal burdens, although it is conceivable that a legislature can regard prices which fluctuate frequently, as too impractical to tailor the purchase tax. It may even be, in rare cases, iniquitous to link purchase tax with price, if more sensible bases can be found. Supposing a legislature classifies sales-tax on the basis of human categories and reduces the rate or exempts the tax in respect of abject destitutes, or starving flood victims or notoriously hazardous habitations, with respect to necessity of life. Such differentiation canno t be castigated as discrimination out of hand. Of course, it is common and commonsense that reliable standard is the price, although in regard to customs duties there are still items levied on the nature of the goods rather than its value in money. For the present, it is sufficient to state that the practice has been to impose purchase tax by weight of cane. Also, in weight of cane its sucrose content and its price have a close nexus, although, theoretically, they may appear unconnected. The High Court has stated that the quantity crushed, the sugar produced and the profits earned, have a substantial linkage. The quality of cane over the whole of Uttar Pradesh varies over a range of 8 to 10 per cent which, if converted to purchase tax, may inflict a trivial difference per quintal Moreover, for many years past the bulk of the sugar has been absorbed by levy by the State and in the costing components the State, as buyer of sugar, has borne the burnt. We have no facts to h old that arbitrary or various burdens are cast because weight, not price, has been the yardstick for tax.Fine-tuning to attain perfect equality may be a fiscal ideal but, in the rough and tumble of work-a-day economics, the practical is preferred to the ideal, provided glaring caprice of gross disparity does not make the levy arbitrary or frolicsome. Article 14 is not intellectual chess unrelated to actual impact or the wear and tear of life but even-handed justice with some play in theplea that infants and adults, weeklings and strongmen, paupers and princes should be put on a par lest legislative validity be imperilled has an elitist merit but sounds like an argumentum ad absurdum in the context of social justice. Unequals cannot be treated equally since mechanical uniformity may become unmitigated injustice. Khandsari units are cottage industries unlike sugar factories and need legislative succour for survival. Their economy justifies State action, classifying them as apart from factories and we fail to appreciate the flaw in the scheme on this score.39. Reference to K. T. Moopil Nairs case was made at the bar to persuade us that unequals cannot be tortured into equality-a vice which stultifies the soul of Article 14 as Anatole France exposed in his sardom epigram that the law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread. We are sure that equality has two sides, both important, and Moopil Nair adverted to one of the facets. Nothing more can be squeezed out of that case. The inequality of situation, in the total conspectus of socio-economic facts and human condition, must be striking and the unjust equality the rule forces down on unequals must be glaring. In taxation, the many criteria of intrinsic intricacy and pragmatic plurality persuade the Court, as a realist instrument and respecter of the other two branches, to allow considerable free play although never any! play for caprice, mala fides or cruel recklessness in intent and effectSri Malhotra, counsel for some appellants, explored beyond Sri Shanti Bhushan, the excise argument in detail , read to us several sections and rules which enables the tax authorities to keep effective track of and control over the sugar in the factories to the extent needed for recovery of the tax. Nothing in these provisions regulates or controls the industry itself nor exacts any levy on the manufacture of sugar or its wide ramifications. Nothing more than prevention of escapement of purchase tax on cane is done and what is done is legitimately incidental to the taxing power. Peripheral similarity between purchase tax and excise levy does not spell essential sameness. Sugarcane tax operates in the neighbourhood of sugar excise but proximity is not identity. The tax is only on purchase of cane, not its conversion into sugar. If the miller has his own cane farm and crushes it, he his no purchase tax to pay but cannot escape excise duty, if any. Again, if cane is purchased by a miller and it is later robbed or destroyed before sugar is manufactured, the State tax is exigible although excise on production is not. A perspicacious appreciation of the implications of purchase and production. dispels confusion on this issue. To buy raw produce is a step preliminary to manufacture but is not part of manufacture. Maybe, in so me cases tax on such purchase and duty on manufacture therewith are so close that thin partition do their bounds divide but how can we obliterate those bounds and telescope the two?