Case: Babu Ram Jagdish Kumar &amp; Co., Etc., Etc Vs. State Of Punjab &amp; Ors., Etc., Etc

In these appeals by special leave, we are called upon to pronounce on the validity of section 31 of the Punjab General Sales Tax Act, 1948 (hereinafter referred to as the Act), the Notification dated the 13th January, 1968 issued thereunder by the Government of Punjab and t he liability of the appellants to pay purchase tax under the Act in respect of the turnover relating to the purchases of paddy made by them during the relevant periodThe appellants are dealers in paddy and engaged in the business of millers in the State of Punjab. They buy paddy from growers or katcha adatias, convert it into rice and sell rice. Most of the rice manufactured by them is purchased by the State Government under food procurement ordersIn exercise of the power conferred by the above provision, the State Government issued the Notification on the 15th January, 1968 adding paddy and rice as items (8) and (9) in Schedule C. The result was that the turnover relating to the purchase of paddy an d rice became exigible to payment of purchase tax under the Act in the hands of the purchasers with effect from the 15th January, 1968. Aggrieved by the said notification, the appellants who became liable to payment of purchase tax on th e turnover relating to the purchases of Paddy made by them filed petitions under Article 226 of the Constitution on the file of the High Court of Punjab and Haryana questioning the validity of section 31 of the Act, the Notification dated t he 15th January, 1968 issued thereunder and their liability to payment of purchase taxThe principal contentions urged by the appellants before the High Court were (1) that section 31 of the Act which authorised the State Government to amen d Schedule C to the Act by adding certain items making the turnover relating to their purchases liable to tax was void on the ground that it suffered from the vice of excessive delegation of legislative power and therefore t he notification issued thereunder was also void and (2) that the appellants who were carrying on the business of manufacturers of rice could not be denied the benefit of section 5(2) (a) (ii) of the Act which authorised the deduction from the gross turnover the turnover relating to the sales of paddy effected in their favour notwithstanding the inclusion of paddy in Schedule C to the Act. The High Court rejected both the contentions of the appellants and dismissed the writ petitions. Hence these appeals under Article 136 of the Constitution.In this Court also, the very same contentions which were urged before the High Court were urged in support of the appeals with some slight variations.

Court's reasoning:
Schedule A to the Act specified certain goods which were considered as luxury goods for purposes of levy of tax at the rates prescribed by the State Government under the first proviso to section 5(1), Schedule B to the Act referred to th e items of goods which were treated as tax- free goods under section 6 and Schedule C during the relevant period referred to the goods the turnover of which was subject to purchase tax. The State Government was however, given power to ame nd all the three SchedulesIt is seen from the provisions of the Act referred to above that the Legislature while directing that the tax shall be levied on the turnover of sales and purchases of goods under section 4 left the rates o f tax payable to be determined by the State Government under section 5(1) of the Act subject to the limits prescribed therein. The Legislature after specifying the goods which should be treated as luxury goods, tax-free goods and goods whose purchase turnover is liable to tax in Schedule A, Schedule B and Schcdule C respectively has delegated the power to the State Government to amend Schedule A under the first proviso to sub-section (1) of section 5, Schedule B under sub- section (2) of section 6 and Schedule C under section 31 of the Act. In each of these cases, the State Government can make the amendment only after giving previous publicity to its intention to do so thus giving an opportunity to interested parti es to make representations, if any. In the case of a democratic Government, this itself acts as a check on arbitrary exercise of powerWe are of the view that the case in so far as section 31 of the Act which is also an integral part of a single enactment and which authorises the State Government to amend Schedule C to the Act cannot be different from the case which was dealt with by the Constitution Bench. If it is permissible for the Legislature to authorise the State Government to convert tax free goods into taxabl e ones, there is hardly any justification for holding that the State Government cannot be entrusted with the power to include goods in Schedule C making their purchase turnover taxableThe above argument is no doubt quite attractive but we do not find any substance in it since it overlooks the decision of the Constitution Bench of this Court in Pandit Banarasi Das Bhanot v. The State of Madhya Pradesh &Ors. (supra) where it has been held that it is open to the Legislature to delegate the power to withdraw the exemption which has been given by the Legislature in respect of certain transactions specified in Schedule II to the C.P. and Berar Sales Tax Act, 1947. Moreover it cannot be said that the principal object of the Act is to encourage manufacturing industry. The Act is a fiscal legislation and its object is to collect revenue for the purpose of meet ing the expenditure of the Government. It is no doubt true that while levying tax under the Act, the Legislature may grant exemptions in certain cases and may decline to grant exemptions in other cases. The question whether such exemption should be given or not is only incidental or ancillary to the principal object viz. the object of levying tax for the purpose of collecting revenue. It cannot also be said that when certain goods are sold in favour of manufacturer, the seller is always entitled to deduct such sales turnover from the gross turnover. He can do so only when such goods are specified in the certificate of registration obtained by the purchaser and they are used by him in the manufacture in Punjab of any goods other than goods declared tax-free under section 6 of the Act for sale in Punjab. Transaction in paddy cannot, therefore, be considered as having been generally exempted from payment of tax under the Act. It is also to be see n that section 5(2)(a)(ii) of the Act grants exemption from payment of sales tax on the turnover of goods sold in favour of a manufacturer under the circumstances mentioned therein only to the seller and not to the buyer even though indire ctly the buyer may be benefited thereby. If the observation made by this Court in State of Tamil Nadu v. M. K. Kandaswami etc., etc.(1) that taxable goods, taxable event and taxable person are three distinct concepts is borne in mind, t here will be no room for any confusion. In the instant case, the taxable event is the purchase of paddy and not its sale which alone attracts section 5(2) (a) (ii) of the Act and taxble person, that is person liable to pay tax, is the purchaser and not the seller. The appellants cannot, therefore, complain that any exemption granted to them by the Act has been taken away. Even though the liability to pay purchase tax may be on appellants, it is bound to have repercussions on the price at which they buy paddy and the price at which rice manufactured by them out of that paddy is sold by them. The tax payable under the Act admittedly being an indirect tax the tax burden would ordinarily fall on the consumer of rice an d not on any of the intermediaries including the appellants. The impugned notification cannot, therefore, be treated as one issued against the policy of the statute.In view of the foregoing, we hold that section 31 of the Act and the Notification issued thereunder do not suffer from the vice of excessive delegation of legislative powerThere is no merit in this contention also because the assumption that paddy and ric e are one and the same is erroneous. In Ganesh Trading Co., Karnal v. State of Haryana &Anr. arising under the Act, this Court has held that although rice is produced out of paddy, it is not true to say that paddy continued to be paddy even after dehusking; that rice and paddy are two different things in ordinary parlance and therefore, when paddy is dehusked and rice produced, there is a change in the identity of the goods. The above decision follows the principle enunciated by this Court in State of Punjab v. Chandu Lal Kishori Lal in which it was held that cotton seeds when separated from cotton constituted distinct commercial goods different from cotton. The above contention has, therefore, to be rejected.