Case: Chandrana &amp; Co Vs. State Of Mysore

2. The appellant was a dealer, among other things, in textiles, with its head office at Mercara and a branch at Bangalore. It was assessed to sales tax on April 29, 1965 under the Mysore General Sales Tax, 1957, on its turnover for the period from October 1, 1957 to March 31, 1958. The question in dispute was whether the turnover of Rs.3,87,200 estimated to be the value of the stock of mill cloth held by the Appellant on December 14, 1957 was exigible to tax. The contention of the Appellant before the assessing authority was that the turnover related to mill cloth on which the additional excise duty was not payable and therefore not paid and so the turnover was exempt from sales tax. The contention was rejected. The Appellant appealed to the Deputy Commissioner of Commercial Taxes. The appeal was dismissed. Its further appeal to the Sales Tax Appellate Tribunal also proved unsuccessful.3. The Appellant took the matter in revision to the Mysore High Court and it also filed a writ petition. Its contention in the writ petition was that sub-section (5A) introduced in Section 5 of the Mysore General Sales Tax Act, 1957 by Act No.9 of 1964 under which the levy was made was ultra vires the powers of Mysore Legislature and therefore void.4. A Division Bench of the High Court by a common judgment dismissed the petitions.The Mysore Sales Tax Act, 1957 hereinafter referred to as "the Act", came into force on October 1, 1957. Section 5 of the Act is the principal charging section. Under the Act, as it stood originally promulgated, cloth of various categories specified in items Nos. 1 to 7 in the Second Schedule to the Act was subjected to a single point levy in accordance with the provisions of Section 5 (3) of the Act.6. Pursuant to a proposal for imposition of additional duties of excise in respect of certain articles including cloth, in lieu of the sales tax leviable by the several States in India, Parliament passed the Additional Duties of Excise (Goods of Special Importance) Act, 1957, (58 of 1957), which came into force on December 24, 1957. The Mysore Sales Tax (Amendment) Ordinance 1957, (Mysore Ordinance 9 of 1957) came into force on December 14, 1957. The Ordinance was replaced by the Mysore Sales Tax (Amendment) Act, 1958 (Mysore Act No.9 of 1958) which was given retrospective effect as from December 14, 1957.7. Sub-section (5A) inserted in Section 5 by the Amending Act No.9 of 1958 read asNotwithstanding anything contained in sub-sections (3) and (5), and subject to the provisions of sub-section (1) of Section 8, in respect of-(a)(i) the sales of goods mentioned in Items 1, 2, 3, 4, 5, 6, 7, 27, 28, 29, 30, 31, 32 and 42 of the Second Schedule, and(ii) the purchase of the goods mentioned in Item 3 of the Third Schedule;on which excise duty or additional excise duty levied by the Central Government with effect from the fourteenth day of December, 1957, has not been paid;(b) the sale of goods mentioned in Items 33 and 42 of the Second Schedule held in stock by the dealer on the fourteenth day of December, 1957, on which the said excise duty is not payable:the tax payable under this Act shall be levied at the rates and at the points specified in the said Second or Third Schedule, as the case may be, on the dealer in such goods whatever his total turnover during the year relating to such goods may be".The existing Section 8 of the Act was renumbered as sub-section (1) thereof and continued to read as follows:-"No tax shall be payable under this Act on the sale of goods specified in the Fifth Schedule subject to the conditions, and exceptions, if any, set out therein.10. The following sub-section (2) was added by Amending Act No.9 of 1958 to SectionSubject to the provisions of sub-section (1) in respect of the sale or purchase of the goods mentioned in Items 1, 2, 3, 4, 5, 6, 7, 27, 28, 29, 30, 31, 32 and 42 of the Second Schedule acquired by a dealer on or after the fourteenth day of December, 1957, on which the said excise duty is not payable shall be exempt from the tax payable under this Act".Entry No.8-A in Fifth Schedule in the Amending Act No. 9 of 1958 was to have effect from 1-4-58. The entryAll varieties of textiles, namely, cotton, woollen or silken including, rayon, art silk or nylon, whether manufactured by handloom, powerloom or otherwise but exclusive to pure silk".In Writ Petition No. 368 of 1961, the Mysore High Court considered the effect of these amendments. Applying the principle enunciated by this Court in Innamuri Gopalam v. State of Andhra Pradesh, (1963) 14 STC 742 (SC) , the Court held that before the charge created by Section 5 (5-A) (a) can come into operation excise duty or additional excise duty should have been levied and the same not paid by the assessee. And as it could not have been levied if it was not leviable under law, Section 5 (5-A) (a) was inapplicable. The Court said that admittedly, additional excise duty was not leviable on the stock of cloth in question. The Court further held that Entry 8-A of the Fifth Schedule completely exempted the stock of cloth from the payment of any sales tax.13. In view of the above decision of the High Court, a further amendment was effected by the Mysore Legislature by enacting Mysore Sales Tax (Amendment) Act, 1963 (Mysore Act No.9 of 1964) whereby the new sub-section (5-A) was inserted in the place of the sub-section of the same number introduced by Mysore Act No.9 of 1958.14. The substituted sub-section, according to Section 5 (5) of the Amending Act was deemed always to have been there. The new sub-section (5-A) reads asNotwithstanding anything contained in sub-section (3) and (5),-(i) in respect of the sale of goods mentioned in Items 1, 2, 3, 4, 5, 6, 7, 27, 28, 29, 30, 31, 32, 33, 34 and 42 of the Second Schedule and(ii) the purchase of the goods mentioned in Item 3 of the Third Schedule, held in stock by any dealer on the fourteenth day of December, 1957, tax shall be levied at the rates and at the points specified in the said Second or Third Schedule, as the case may be, on the dealer on such goods whatever his total turnover during the year relating to such goods may be:Provided that no tax under this sub-section shall be payable by a dealer who is a manufacturer of such goods on production of proof that excise duty or additional excise duty levied by the Central Government with effect from the fourteenth day of December, 1957, has been paid in respect of the manufacture of such goods".The main argument of the Appellant before the High court was that sub-section (5-A) of the Section 5 as amended by Act No.9 of 1964 purported to levy tax not on actual sales but on fictitious or deemed sales, and therefore the sub-section was bad, as the Legislature had no power pursuant to Entry 54 of State List of the Seventh Schedule to the Constitution to tax non-existent sales. The Court overruled the contention and held that the tax imposed was on actual sales and not on deemed or fictitious ones. The Court alsowill be remembered that the position as stated in the judgment of this Court in Writ Petition 368 of 1961 (Mys) was that the total effect of the amendment was to give paramount operation or importance to sub-s. (1) of Section 8 which was a categorical statement of exemptions. The opening words of sub-section (5-A), as then inserted, also included the expression subject to sub-section (1) of Section 8. The said expression was totally deleted when by the subsequent amendment a new text was substituted for sub-section 5-A. Another important circumstance is that, where as sub-section 5-A as originally introduced contained the words "on which excise duty or additional excise duty levied by the Central Government with effect from the fourteenth day of December 1957, has not been paid", no such words are found in the text of the substituted sub-section 5-A. On the contrary, the position was simplified by stating that tax will be levied in respect of sales or purchases, as the case may be, relatable to the stock held by the dealer on 14-12-1957, and the possibility of taking a case beyond the purview of the sub-section was limited manufacturers by stating the idea separately in a proviso".

Court's reasoning:
19. We do not think that the above proposition has any application to the case in hand. The question here is whether Mysore Legislature was competent in 1964 to impose tax on sales of textiles during the assessment period namely from October 1, 1957 to March 31, 1958 at a rate in excess of that specified in Section 15 of the Central Sales Tax Act as it stood then, when textiles were not declared goods. We think that imposition of sales tax on textiles at the rate specified in the Second Schedule to the Act before they became declared goods was permissible for the Legislature of Mysore. The power of the Legislature to retrospectively levy tax has not been controverted.20. There was no fetter on the power of the Legislature of Mysore on February 27, 1964 in enacting a measure imposing sales tax on the turnover of undeclared goods during the assessment period at the rate specified in the 2nd Schedule to the Act. It was because textiles became declared goods from April 1, 1958 that the Mysore Legislature lost its power to tax the sales of textiles at a rate higher than that specified in Section 15 of the Central Sales Tax Act, as it stood at the relevant time. Though the goods on the sales of which tax was imposed remained the same in substance, their legal quality became different. As textiles were not declared goods before April 1, 1958, there was no inhibition on the part of the Mysore Legislature in subjecting the turnover of sales of textiles before that period to a tax higher than that specified in Section 15 of the Central Sales Tax Act.21. The matter can be looked at from a different angle. As we have already indicated, by virtue of Section 5 (5) of the Act No.9 of 1964, the substituted sub-section (5-A) was deemed to have been in the Mysore General Sales Tax Act always. The only limit on the power of a legislature to create a fiction is that is should not transcend its power by its creation. The limitation on the power of the Legislature of Mysore in 1964 when it enacted Act No.9 of 1964 was that on the sale of declared goods it could not have imposed sales tax at a rate higher than that specified in Section 15 of the Central Sales Tax Act as it stood then. There was no limitation on its power to impose tax on the turnover of sales of textiles before April 1, 1958, when they were not declareda pure question of law, we permitted the Appellant to urge the ground in support of the appeals and allowed the said application.