State of Kerala v. K. L. Johar Co Ernakulam — 1973 DIGILAW 213 (KER)

JUDGMENT P. Govindan Nair, C.J. 1. The question that arises for consideration in these cases is the validity of section 18 of the Kerala General Salestax Act, 1963 and rules 12 to 18 of the Kerala General Salestax Rules, 1963. Shortly stated the main contention that was advanced before us was that the State Legislature was not competent to enact a provision such as the one in section 18 of the Act under Entry 54 of List II of the Seventh Schedule to the Constitution. We shall therefore first begin by reading Entry 54 of List II of the Seventh Schedule. "Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I." 2. It is unnecessary to refer to Entry 92A of List I as nothing turns on that Entry as far as these cases are concerned. On behalf of the State it has been claimed that section 18 of the Act is a law that can competently be made by the Legislature under Entry 54. We shall now read section 18. Provisional assessment. ”(1) The tax for each year payable under any of the provisions of this Act may be assessed, levied and collected in advance during the year in monthly or other prescribed instalments and for that purpose a dealer may be required to furnish within the prescribed period either an advance estimate of his turnover for the year, or such periodical returns of the actual turnover as may be prescribed. The assessing authority may determine the amount of tax payable in respect of any period and on such assessment the dealer shall pay the sum demanded within such time as may be fixed by such authority. The assessing authority may determine the amount of tax payable in respect of any period and on such assessment the dealer shall pay the sum demanded within such time as may be fixed by such authority. (2) If no return is submitted by the dealer under sub-section (1) within the prescribed period, or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority may determine the amount of tax payable by the dealer in accordance with the provisions of sub-section (3) of section 17 (3) If the assessing authority has reason to believe that the provisional assessment made by it for any period was based on too low a turnover or was made at too low a rate or was based on too high a turnover or was made at too high a rate, it may enhance, or reduce, as the case may be, such provisional assessment: Provided that before making an enhancement of the provisional assessment as aforesaid, the assessing authority shall, except where such enhancement is based on the turnover finally determined for the preceding year, give a reasonable opportunity to the dealer to show cause against such enhancement and make such enquiry as it may consider necessary. (4) The assessment, levy and collection of tax under this section shall be subject to such adjustment as may be prescribed on the completion of final assessment in the manner prescribed. " 3. Consistent with the provisions in this section ”it has not been contended to be otherwise ”rules 12 to 18 and 21 have been framed. 4. Before dealing with the arguments it is necessary to emphasise the provision in sub-section (4) of section 18 which states that the assessment, levy and collection of tax under this section shall be subject to such adjustment as may be prescribed on the completion of the final order of assessment in the manner prescribed. We must also notice that section 18 (1) itself states that a dealer may be required to furnish within the prescribed period either an advance estimate of his turnover for the year, or such periodical returns of the actual turnover as may be prescribed. It is to give effect to these provisions in the section that rules have been framed. We must also notice that section 18 (1) itself states that a dealer may be required to furnish within the prescribed period either an advance estimate of his turnover for the year, or such periodical returns of the actual turnover as may be prescribed. It is to give effect to these provisions in the section that rules have been framed. From rule 21 it is clear that the assessee has been given the option to decide whether he will pay tax periodically on his actual turnover, or whether he will pay tax pursuant to a provisional assessment on an estimated turnover. The provision in section 18 (4) has also been given effect to by the rules prescribed. It is thus abundantly clear that if the assessee so chose he will be taxed only even under the section on the actual turnover per month as provided by rule 21 and only in cases where he opted or to be more exact when he failed to opt for the benefit of rule 21a provisional order of assessment would be made on an estimated turnover. Even then if he has paid more than the tax due provision has been made for adjustments as specified in the section. It is thus evident that on the basis of the section nothing more will ultimately be collected even in such cases where he had temporarily paid more, ”a contingency which the assessee could have easily avoided ”than that was actually due. The provision in section 18 is therefore for enabling the tax levied under the Act to be collected. It is in this background that we have to consider the arguments that have been put forward. 5. Shorn of its embellishments, the argument went to the extent of suggesting that no machinery section can be made by legislature under Entry 54 in List II of the Seventh Schedule to the Constitution for determining provisionally what the tax that would be due from a dealer for an year. The argument was based on the wording in Entry 54; the power given to the legislature under the entry is to tax sales and not anticipated sales. There are two impediments in accepting this argument. The argument was based on the wording in Entry 54; the power given to the legislature under the entry is to tax sales and not anticipated sales. There are two impediments in accepting this argument. No entry in a Constitutional Act providing for legislative powers can ever be understood in such a limited sense; such entries will have to be given the widest meaning possible, and anything that will fall, not only within the meaning of the words used in the entry but what can reasonably be construed to be connected with or incidental to that provided specifically will be within the ambit of the power conferred. So it has been said many times over and over again by the Supreme Court. We will refer to one of the decisions of the Supreme Court relied on by counsel who contended for the opposite position and relied on by the learned Judge in the judgment under appeal (Judgment in O.P. No. 2450 of 1971) itself, to fortify what we have said. This decision is in The Check-post Officer, Coimbatore, etc. v. M/s K. P. Abdulla and Bros. A.I.R. 1971 S.C. 792. The Supreme Court said: "A legislative entry does not merely enunciate powers: It specifies a field of legislation and the widest import and significance should be attached to it. Power to legislate on a specified topic includes power to legislate in respect of matters which may fairly and reasonably be said to be comprehended therein. A taxing entry therefore confers power upon the legislature to legislate for matters ancillary or incidental including provision for preventing evasion of tax." 6. On behalf of the Revenue it is contended that the provision in section 18 has been made with the intention of preventing the evasion of the payment of tax due under the Act. It was also urged that this will facilitate the collection of tax due under the Act and the submission was that every such provision should be understood as a machinery for the due collection of tax under the Act. We are inclined to accept this contention on behalf of the Revenue. We do not think that there is anything illegal in section 18 of the Act; the section is not bad for want of legislative competence. We are inclined to accept this contention on behalf of the Revenue. We do not think that there is anything illegal in section 18 of the Act; the section is not bad for want of legislative competence. There is a direct authority on the point of the Madras High Court in Ramraj Tobacco Trading Company v. The Assistant Commercial Tax Officer, Attur and others, (1957) 8 S.T.C. 127 where an identical question arose for consideration. A passage from the judgment in that case is illuminating. We shall extract it. "The contention urged by Mr. Raghavachariar for the petitioner was that the provisional assessment thus levied upon his client was not in truth a tax on the sale of goods falling within Entry 54 of the State List but was a tax on an anticipated sale which was not within the legislative power of the State. We are clearly of the opinion that this contention is not well-founded. One thing is clear that if the anticipated sales do not take place, no tax liability is incurred. In other words, if at the end of the year the estimated turnover is not reached the dealer pays a tax only on the actual sales during the year. But this might not conclude the question of the existence or otherwise of the legislative power. It is not, in our opinion, correct to say that it is a tax on an anticipated sale. On the other hand, it is merely machinery employed for securing to the State the tax due and payable to it. It has to be remembered that the power confided to the State Legislature under Article 246 (3) in common with other similar power to Parliament by the other sub-sections of the Article is to make laws with respect to the matters specified in the several entries of the State List including Entry 54. The words of the entry designate the centre and not the circumference of the power. If therefore the impugned provision has relevance to or connection with the subject assigned, it would be within the State Legislative power. The words of the entry designate the centre and not the circumference of the power. If therefore the impugned provision has relevance to or connection with the subject assigned, it would be within the State Legislative power. Again every legislative power carriers with it authority to legislate in relation to acts, matters and things the control of which is found necessary to effectuate its main purpose and thus carries with it power to make laws governing or affecting many matters that are incidental or ancillary to the subject matter. If a tax liability is certain to arise ”a matter not in controversy ”a provision designed to ensure that this shall not be evaded is in our judgment clearly within the power to enact a law with respect to taxes on the sale of goods. This is just on a line with section 18-A of the Indian Income-tax Act and grounded on the same ratio. There the assessee avails himself of the option to be taxed on his monthly turnover under rule 13 there is no factual foundation for any contention that the tax was being collected before the liability for it could be fastened under a power to tax sales." 7. This passage answers all the contentions that have been urged by counsel before us and no decision has been cited before us which has struck a discordant note to what has been said in that judgment as early as November 16, 1956, nearly two decades ago. Very much later, a similar contention was raised before the Supreme Court in Khyerbari Tea Co. Ltd. and another v. State of Assam and others, A.I.R. 1964 S.C. 925. We shall refer to certain passages from this judgment. In paragraph 16 at page 934 the contention was raised by Mr. Pathak about legislative competence. "It has been urged before us by Mr. Pathak that section 3 which is the charging section, is outside the legislative competence of the Assam Legislature. The Act purports to have been passed by virtue of the legislative power conferred on the State Legislature under Entry 56 in List II of the Seventh Schedule. Pathak about legislative competence. "It has been urged before us by Mr. Pathak that section 3 which is the charging section, is outside the legislative competence of the Assam Legislature. The Act purports to have been passed by virtue of the legislative power conferred on the State Legislature under Entry 56 in List II of the Seventh Schedule. The entry reads thus: ˜Taxes on goods and passengers carried by road or on inland waterways.' It will be recalled that Entry 30 in List I deals with carriage of passengers and goods by railway, sea or air, or by national waterways in mechanically propelled vessels, and so. Entry 56 in List II does not cover cases falling under Entry 30 in List I. It is only in regard to goods and passengers carried by road or inland waterways that the State Legislature can pass a law imposing taxes. Mr. Pathak's contention is that section 3 read with the proviso to sub-section (2) clearly contemplates that the primary and the sole liability to pay the tax on tea has been placed on the producer even in cases where the tea in question may have been sold at the tea garden before it is carried. In other words, the contention is that in cases where tea is carried by the purchaser it is only the purchaser of the tea which is carried who can be taxed, and since the producer is taxed even in such cases, the taxation itself is beyond the legislative competence of the State Legislature." After considering the question whether section 3 (2) considered therein makes the producer (seller) liable even before the tea sold was carried away from the garden by the purchaser the court came to the conclusion: "It may be conceded that when the legislature constructs a machinery for the recovery of the taxes which it is within its competence to impose, the said machinery should have some rational or intelligent connection with the tax. In the absence of a rational nexus between the producer and the tax on goods carried, it may be open to a citizen to contend that the tax is not one justified by Entry 56. But can we say that between the producer of tea and the tax which is levied on the tea carried from his garden, there is no rational nexus. But can we say that between the producer of tea and the tax which is levied on the tea carried from his garden, there is no rational nexus. Considerations of administrative convenience as well as considerations or facility in recovering the tax cannot be treated as irrelevant in this context. The tea which is taxed has been produced by the producer and even when he sells it to a purchaser, it is obvious that it would be carried away and not left with the producer, and so, the legislature may have thought that it would be appropriate to make the producer liable to pay the tax." 8. Finally the court came to the conclusion: "Therefore we do not think Mr. Pathak is right in contending that merely because in a few cases where tea may be sold at the garden before it is carried, the producer is made liable to pay the tax, section 3 itself is outside the legislative competence of the Assam Legislature." 9. A similar question arose before this Court in Jose, E.J. and others v. State of Kerala, I.L.R. 1973 (2) Kerala 112. The legislation impugned therein was one imposing a tree tax and was said to have been passed under Entry 51 of List II of the Seventh Schedule to the Constitution which spoke of duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India:” (a) alcoholic liquors for human consumption; (b) but not including medical and toilet preparations containing alcohol or any substance included in sub paragraph (b) of this entry" The argument was that a duty on excise is a duty on manufacture and that the juice that had been taken from the tree was not manufactured toddy which came into existence after the juice was extracted from the tree. It was therefore contended that the imposition of tree tax by the statute apparently on the basis of the juice (which was not toddy and therefore was not alcoholic liquor) extracted from the tree was beyond the legislative competence of the State Legislature. This contention was negatived by this Court. One of the passages is useful. It was therefore contended that the imposition of tree tax by the statute apparently on the basis of the juice (which was not toddy and therefore was not alcoholic liquor) extracted from the tree was beyond the legislative competence of the State Legislature. This contention was negatived by this Court. One of the passages is useful. In paragraph 10 of the judgment after considering a number of decisions this Court said: "Nor do we appear to be justified in stating that taxable event being manufacture or production the duty cannot be imposed at any stage prior to these. We are therefore of the opinion that, on principle, there is nothing objectionable to levy an excise duty on toddy even at the stage where the unfermented juice is drawn from the trees by tapping and before production or manufacture of alcoholic liquor for human consumption by the process of fermentation. This pertains to the machinery for collection and does not destroy its nature as essentially an excise duty." 10. What is collected or collectable pursuant to a provisional order of assessment in accordance with section 18 of the Act is also only collection pursuant to a machinery provision for ensuring the prompt payment of taxes on sales to which the dealers under the Act had become liable. There is no infirmity in the statute. 11. In Writ Appeal No. 433 of 1971 though this question had been raised it was perhaps unnecessary to have dealt with it in the judgment under appeal. We consider that it would have been better that the question had not been dealt with in view of the decision of the learned Judge to dismiss the original petition on other grounds and with great respect we are unable to agree with the view expressed that the section is incompetent. The decision of the Supreme Court in 1971 S.C. 792 relied on by the learned Judge does not support the conclusion reached. The facts the Supreme Court had to consider were entirely different. It dealt with the power to confiscate conferred by section 42 (3) of the Madras General Salestax Act goods which were carried without the necessary documents. It was held that the power granted by the section was not incidental or ancillary to the power to levy salestax. The considerations which led to the decision therein are entirely different from those arising in these cases. It was held that the power granted by the section was not incidental or ancillary to the power to levy salestax. The considerations which led to the decision therein are entirely different from those arising in these cases. The ruling cannot apply. 12. We accordingly set aside the judgment under appeal in so far as it declares section 18 of the Act and the rules 12 to 18 to be beyond legislative competence and allow the appeal to that extent. 13. The original petitions heard along with the appeal have raised the same question; the validity of section 18 and rules 12 to 18 and 21. We dismiss the original petitions.